November 20th 2018 / BY: Wisteria

What is Auditing and Why is it Necessary?

For business owners and key management staff, an audit is often seen as a necessary evil, a box to be ticked in order to satisfy compliance. In fact, an independent audit can add real value to your company. It can help you spot weaknesses in your infrastructure, expose fraudulent behaviour, and refine your accounting processes. In this article, we’ll explore the finer points of auditing and discover how an independent audit can help your business become more efficient and more profitable.

What is an Audit?

Put simply, an audit is an examination of your company’s financial statements, designed to assess the validity of your accounts and weed out any discrepancies. An external audit will determine whether or not your financial records provide a ‘true and fair’ view of your company’s financial position, and ensure your accounting procedures meet with all the necessary legal requirements.

How Do I Know if My Company Needs an External Audit?

Most large and medium-sized companies are required, by law, to complete an independent audit at the end of every financial year. However, if your business meets any two of the following criteria, you may qualify for an exemption:

  • The annual turnover of the business is no more than £10.2m
  • The total assets add up to no more than £5.1m
  • Your company employs, on average, no more than 50 members of staff

Even if your company falls below these legal thresholds, it may still be subject to an independent audit, if:

  • It’s a requirement laid down in your company’s articles of association
  • The company is part of a group that breaches certain size thresholds
  • Shareholders with at least a 10% stake in your organisation ask for an audit

Furthermore, if it’s a public company, an insurance broker, or an organisation involved in banking or issuing e-money, an external audit is mandatory, whatever your circumstances.

How Can My Company Benefit From an External Audit?

For many small businesses, an independent audit may not be a legal requirement, and, if you fall into this bracket you can perform your audits in-house. However, if you do so, you may be missing out. Think of it like a health check for your business. An outside audit can highlight weaknesses in your internal controls, improve systems and procedures, and even affect your bottom line. Here are a few ways your company could benefit from an external audit:

  • An independent auditor will give you a true, unbiased picture of your business; you’ll get valuable feedback on key systems and controls and recommendations on how to improve efficiency and refine your accounting processes.
  • An audit will highlight any errors in your accounting systems and expose any fraudulent activity.
  • Independently verified accounts demonstrate transparency and best practice. This will help to boost the public perception of your firm and provide assurances to board members, staff and other key stakeholders that the business is performing as it should.
  • Regular auditing of financial statements can help your credit rating, improve relationships with your bank and provide assurances to would-be investors.
  • Suppliers, lenders and clients often request external verification of your financial statements. So, if you’re looking to win new business or apply for credit, the ability to provide certified accounts could be crucial.
  • If you’re planning to sell your business, potential buyers will request your audited accounts as part of their decision-making process.

Speak to the Professionals

Getting your accounts independently verified can improve many aspects of your business. It can help to build confidence in the marketplace, streamline internal controls, and highlight any weak spots in your infrastructure. Here, at Wisteria, our professional, experienced auditors can help to keep your business running smoothly, maximise potential exit opportunities and ensure your company meets all the statutory requirements. So, whether you’re a company director looking to fine-tune your operations, or a small business owner seeking new investors, we can help you get your books and your business in order.