Do you audit your business? If you thought that business audits were only carried out when HMRC comes knocking or are only for big firms, think again.
It’s understandable that the word “audit” has been misunderstood or confused as only something HMRC enforces. With an announcement that 5,000 extra compliance officers are being recruited, HMRC “compliance checks” – or audits – are likely to rise.
They already carry out around 320,000 compliance checks annually! But if you already audit, you really don’t have anything to worry about.
Some businesses must legally audit – this is known as a “statutory audit”. These include:
- PLCs
- Some FCA regulated entities
- Certain companies involved in insurance, banking and other financial services.
- Businesses with a turnover of more than £10.2 million
- Companies with assets of more than £5.1 million
- Businesses with more than 50 employees.
But directors, trustees and shareholders of any company can request an audit. If you are a director or business owner, then it’s important to know why you should audit your business.
Like getting to grips with your accounts, audits are all about getting to know your numbers. This is something we think is imperative to any business owner.
What is a company audit?
A business audit is an examination of your business’s financial reports by an auditor. Auditors are independent professionals who can review the accuracy and transparency of your company’s financial records and processes.
Audits usually happen annually and their purpose is to analyse financial statements. Auditors check that your statements are accurate and reflect your business’s financial position.
Any of your directors or regulatory agencies can see how much money your company has earned and spent during your company’s fiscal (or financial) year.
The reports include the balance sheet, cash flow statement and profit and loss account. It also looks at statements about changes in equity, other notes and any other significant changes.
Discretionary audits
You can carry out your own audits. These are called “discretionary audits”. But be aware that if you or one of your team audits your business, you might not get the full picture as there will be unintentional bias. It’s always a good idea to use an auditor who is totally independent as they will give you the true, overall picture.
Why you should audit your business
Audits provide a valuable insight into your business.
We have mentioned in an earlier blog that knowing your numbers is important. And auditing really helps by taking an in-depth look at your company’s financial health over a fiscal year as well as your compliance.
There are a host of other benefits when you audit your business than simply giving you a clear view of your business’s financial health. From exposing potential fraud to giving lenders confidence, auditing isn’t something only big PLCs should carry out.
Benefits of a business audit
Business owners often shake at the thought of bringing in auditors. But they shouldn’t be something to fear – unless you are doing something illegal! There are many advantages of an audit. We’ll give you an overview of why an audit is good for your business.
1. Boost credibility
Auditing your business finances helps add credibility to your company. If you are looking to raise funds or you’re planning to exit the business, having audited accounts means you’re more likely to reach your goals. And investors will see that you and your business are reliable and trustworthy.
2. Improve profitability
There are many ways that your profitability might be affected through inefficiencies, fraud risks or even theft by an employee. An audit can pinpoint those issues and give you a chance to address the problems, which boost your profitability.
3. Improve accuracy
The biggest issue with business finances is that owners often only see a snapshot of the financial health using the most recent bank statements and spreadsheets. These won’t give you the whole picture. It is often not until year-end when errors are noticed. And that can often be too late! An audit can draw your attention to issues and potential problems immediately. By improving accuracy, you can put measures in place to solve the problems. Without an audit, you might miss the opportunity to intervene on weaknesses that could be a risk for your business.
4. Ensures compliance
Businesses must meet certain tax and/or financial regulations. An audit can quickly highlight any areas of compliance where the business is not meeting regulations. Most business owners do not set out to ignore compliance, but many make genuine errors that could end in receiving penalties. An audit will mean there are no hidden mistakes and keeps your company compliant.
5. Business insights
As well as giving you a clear financial insight into your business, audits can also help give other understanding of your company. Using someone from outside the business means you can lean on their understanding and knowledge. This can provide a valuable insight into different sectors and industries that you might be able to work with.
What to do now?
Would you like to audit your business? Or do you want to know more about the importance of audits and getting to know your numbers? You can contact our team today for a chat about your needs.
