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Most small limited companies do not need to complete a statutory financial audit. But there may be times when an audit can help small businesses.

Normally, SMEs in the UK benefit from the government’s small company audit exemptions. A research paper found that 90% of such companies registered in the UK benefit from the exemptions.

So what is a financial audit, and does your business need one?

What is a financial audit?

Independent auditors review a company or organisation’s books and records, review financial statements and discuss any risks and issues if they find any during a financial audit. These audits are conducted in line with Generally Accepted Auditing Standards, which are set up by the auditing profession. They provide a framework for what needs accomplishing in an audit.

Auditors need to understand the internal control systems of the company and assess whether enough evidence has been gathered to form an opinion.

Does my business need a financial audit?

Most small businesses are usually exempt from financial audits. But there are often times when you may benefit from one. Also, under the Companies Act, if 10% of shareholders request and audit, it has to be done one month before the end of the financial year they want to be audited.

Sole traders, limited liability companies, partnerships and not-for-profit organisations are also exempt from financial audits. A business is classed as small if:

  • Annual turnover is less than £10.2 million
  • It has fewer than 50 employees
  • And assets are worth less than £5.1 million

What are the benefits of an audit?

There are a number of reasons when a company can benefit from an audit.

Independent and objective review

Audits offer an independent and objective review of your company’s financial information. While regular meetings with your company’s accountant is essential for understanding your financial position, audits go deeper and ensure the information presented is reliable, accurate and complete.

Identifies opportunities for growth and improvement
Audits are useful for making business decisions. So, if you are considering growing your business or want to make some improvements, an auditor’s management letter can be used for strategic planning.

An auditor can also bring matters that affect risk and value to the attention of the management team. This will help you improve the way your business runs, such as the need for new staff, reducing costs or being prepared for new legislation.

Fraud protection

Uncovering any fraudulent activities or financial misconduct that may have taken place is another benefit of an audit.

Protects business reputation

An audit will also help improve your overall risk management and governance policies. This helps make your company more resilient to unexpected events, which protects its reputation.

As a result, your company will demonstrate that is lower risk, which is helpful if you are seeking a buyer for your business. An excellent compliance record and attitude, particularly with HMRC, will also reduce the risk to investors.

What to do next

If you would like to know more about audit exemptions, visit HMRC’s website. Or you can contact our team for more details.