What Is an Audit?
An audit is an independent review of a company’s financial records and statements to ensure they are accurate and compliant with the relevant laws and regulations. Auditors may express a qualified opinion if they find certain misstatements in the financial statements, and the auditor concludes that these misstatements are material. This is key to building trust and confidence with stakeholders, investors, shareholders and customers. Auditors also review non-financial information to ensure consistency and identify any material misstatements. Depending on the findings, the auditor expresses different types of opinions, such as qualified, adverse, or disclaimer of opinion. During an audit a thorough examination of a company’s financial transactions, accounting records and internal controls is carried out to identify any material errors or irregularities. Audits play a critical role in identifying and preventing fraud within financial statements. By providing an independent view, an auditor’s opinion ensures a company’s financial statements are a true and fair view of the company’s financial position. These audits are conducted by professional accountants who meticulously review financial records to ensure
As your business grows so do your responsibilities and an audit is no exception. Once you reach a certain size you have to have one by law; so it’s important to know your statutory requirements.
Understanding the audit process, which includes various phases such as planning, execution, and reporting, is crucial for ensuring compliance and improving business operations.
Effective management is crucial in ensuring that audits are conducted smoothly and that significant findings are communicated to organisational leaders.
Technology is changing audit procedures making them more efficient and accurate. Cognitive computing, artificial intelligence, data analytics and cloud based solutions mean auditors can complete audits faster, more accurately and focus on judgement.
But while it may seem scary at first there are many benefits to knowing your numbers a little better. In this article we’ll look at those benefits and the audit requirements for different companies.
When Do I Need to be Audited?
You may need an audit if your company is large enough and has a turnover of £10.2 million or more. Most private companies that need an audit will need a statutory audit if they meet two of the following:
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more than £10.2 million in turnover
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assets of £5.1 million or more
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50 or more employees.
Many organisations view audits as burdens, but they are essential for compliance and improvement.
Smaller companies don’t need to worry about compulsory audits but they’re not always exempt. Under the small companies regime these businesses can disclose less information in their financial statements but must still comply with certain regulatory requirements. Under the small companies regime, certain financial reporting frameworks and auditing requirements are only applicable under specific conditions. If shareholders who own 10% or more of your business formally request an audit you’ll have to do one by law regardless of whether you meet the above criteria or not.
An audit will also be required if your company’s articles of association require it – but you can change this with shareholder approval.
Unless you’re exempt you’ll need to have an audit every year. You have up to 9 months after the end of each financial year to complete your audit and file it with HMRC and Companies House. Internal audits identify flaws in processes before external audits. Internal auditors look at internal operations and controls.
Different types of companies, including subsidiary companies, have different rules. For example, public companies, subsidiary companies and companies in banking or insurance need regular audits. Internal audits are often done to ensure compliance with laws and regulations.
If your company is a registered charity with an income of £25,000 or more the Charity Commission will require you to have an independent examination of your accounts. Only larger charities with an income of over £1 million will need a full external audit. External auditors give an objective opinion on financial statements, ensuring they are free from significant misstatements.
An unmodified opinion is given when financial statements comply fully with relevant standards in all material respects.
Voluntary Audits and Audit Requirements for Private Companies
Many business owners dread audits but your company may benefit from one even if it’s not compulsory.
Voluntary audits involve a comprehensive examination of internal controls and risk management practices to enhance operational efficiency. For example, a full review of your accounts will help you plan ahead better. Auditors will also highlight issues so you can deal with them early on and ensure financial information is accurate and fair.
These audits aim to improve the effectiveness of your business operations by identifying inefficiencies and providing actionable insights.
These audits are conducted in accordance with established frameworks to ensure compliance and accuracy. A voluntary audit will also help you stay compliant before you meet the criteria for a statutory audit in the future. It will maintain accurate financial reporting which is key to compliance with the laws and regulations.
A voluntary audit can significantly enhance the perceived value of your financial statements by ensuring they accurately reflect your company’s financial position. If you’re selling your business an audit will help you gain credibility with buyers and get the best price possible.
Audit Exemption
Small companies as defined by the Companies Act 2006 are exempt from an audit. To be a small company a business must meet at least two of the following: a turnover of £10.2 million or less, a balance sheet total of £5.1 million or less and 50 or fewer employees. Even if a company is generally exempt, it must have its accounts audited if shareholders owning at least 10% request one. Even if a company is exempt from an audit it may still choose to have one. An adverse opinion is issued when auditors determine that misstatements in the financial statements are both material and pervasive. A voluntary audit can improve the quality of the financial information, providing reasonable assurance that the financial statements are free from material misstatements, improve credit ratings and provide valuable insights into the company’s financial position. Conducting an audit requires significant time and resources, which can impact normal business operations. This can be particularly useful for companies looking to attract investors or raise finance.
Members of the company have the authority to request an audit, emphasising their role in corporate governance.
Company Types and Audit Requirements
Different types of companies have different audit requirements. Public companies, financial services companies and insurance companies need an audit because of the nature of their business and the need for regulatory compliance. Public companies are subject to stringent auditing standards to ensure transparency and accountability. Private companies can be exempt from an audit if they meet the small company criteria in the Companies Act 2006. These audits are conducted in accordance with established auditing standards to ensure consistency and reliability. Subsidiary companies can also be exempt from an audit if they meet certain conditions and their parent company provides a guarantee. Knowing your audit requirements is key to compliance with the relevant laws and regulations to avoid penalties and maintain your reputation. Compliance with relevant regulations is crucial to avoid penalties and maintain your company’s reputation.
Choosing the Right Auditor
When the time comes you need to choose the right people to do your audit. Working with professionals who have experience of auditing businesses like yours will make the process as painless as possible. Choosing the right firm to conduct your audit is crucial for ensuring a thorough and accurate evaluation. Certified public accountants bring the necessary expertise and independence to the audit process. Our auditors exercise professional scepticism throughout the audit process to ensure the reliability and accuracy of your financial statements.
You can rely on us to do an audit with purpose. Our audit services will help you comply but we’ll also use our expertise to identify areas for improvement in your finances so you can improve your business. Our audit services provide assurance that your financial statements are reliable and compliant.
We work with businesses that have a purpose and want to be part of their journey. That’s why we’ve designed our audit services to be about more than just ticking boxes; with our audit reports and advice you’ll know exactly what to do next. Our audit reports will give you key recommendations for managerial changes and improvements. Our audit reports will give you key recommendations for improving governance and compliance.
We also specialise in accounting and audits for charities and have the skills and expertise that can make the difference between an acceptable audit and an illuminating one so your organisation can continue to do the most good for people. Our external auditors will give an objective opinion on your financial records so you can make better financial decisions.
Get in touch with us to find out more about our specialist audit services.
