Why an audit matters
- To comply with legal requirements
- To ensure the accounts are true and fair
- To check basic financial disciplines are being applied
- To help in obtaining finance
- To assist in the expansion or sale of a business
- To help detect fraud and error
- To help process year end adjustments to ensure stocks, debtors and other Balance Sheet items are correctly stated
Under common law, all companies other than those which are exempt under the rules of the Companies Act are required to have their annual accounts audited by a qualified, independent auditor. To be exempt, a company must meet a number of financial and non financial criteria:
- Turnover is less than £5.6m
- Balance sheet total is £2.8m or less
- Maximum of 50 employees
- That the Company meets two out of three of the above criteria both in the year under review and the previous year
These criteria apply to accounting periods ending on or after 30 March 2004.
Even if the Company is exempt from an audit by virtue of the above criteria, it might still be desirable to have an audit.
A Company’s bankers might require an audit, regardless of the statutory exemptions in order that they can rely upon the accounts as a basis for making lending decisions and subsequent monitoring of the financial health of the Company.
An audit seeks to establish the accounts are true and fair and free of material misstatement. Without an audit, it is possible that bookkeeping errors or inappropriate accounting policies might result in the accounts being inaccurate.
An audit lends credibility to the accounts, which is important for Directors of the Company who may use them in the decision making process. It is also important to actual and potential investors and shareholders who might be distant from the management of the Company. Suppliers, customers and employees will have greater confidence in the Company if the accounts are audited as an independent opinion will express if the accounts are true and fair.
In order for small and medium sized businesses to flourish, it is important that adequate accounting systems are in place and basic financial disciplines are applied. This might often seem difficult for business start ups or Companies experiencing new or rapid growth. An audit will include a review of the accounting systems and draw any deficiencies to the attention of management.
A Company that engages a firm of Accountants to perform an audit is often seen as being positive and proactive. This sends out the right message to interested parties.
If a Company has had their accounts audited for a number of years and received an unmodified report, this will provide assurance to the potential buyers of a Company and any other participants.
There are a lot of good reasons why a Company might wish to have an audit, even if it might be able to claim exemption under the Companies Act. Perhaps the most important reason of all though is that Company Directors have a legal requirement to ensure the accounts are true and fair and comply with the Companies Act 1985 and acknowledge their responsibilities by signing the accounts. An audit will provide them with an independent opinion upon which they can rely.
Contact us for a free quote, we will be happy to discuss your requirements and plan the audit approach with you. We will endeavour to ensure there is a minimum of disruption to your staff and their routines and provide added value by reporting any weaknesses in a management letter.