Businesses and charities over a certain size are legally required to have an audit, but that’s not the only reason you might have to undertake one. Although audits sometimes get a bit of a reputation as being disruptive and inconvenient, there are actually several good reasons for having one.
Here’s our quick guide to what exactly an audit is, and the benefits it could bring you.
What is an audit?
An audit is where someone outside of your organisation examines your business’ financial report. Your financial report, which forms part of your annual report, usually includes the following:
- A balance sheet
- An income statement
- A cashflow statement
- A statement detailing any changes in equity
- Notes explaining and summarising your accounting processes.
Some audits are compulsory, like statutory and grant audits, but many company directors choose to get an audit voluntarily, even though there’s no legal requirement to do so.
Either way, the purpose of an audit is to get a complete picture of what’s going well in your business, and where there are areas or processes you could improve. An audit will also flag any risk areas so that you can put steps in place to mitigate them.
What happens in an audit?
The first step in the audit process is for the auditor (the external person who’ll carry out the audit) to meet with your company directors to talk about your business, how and what your work is, and any processes you have in place. This is an important part of the procedure, as it means the audit will be tailored exactly to you.
Next, they’ll start looking at all of your books and records, comparing them to what they know from experience to be the best practice. They’ll also make sure you’re complying with any policy and regulation and can examine the way in which your systems (like accounting or IT) align with your day-to-day business activities, making sure everything’s running as smoothly as possible.
There’s a fine line for auditors to tread between making sure the audit is robust and in-depth without being disruptive or feeling too intrusive. At Nicholas Peters, we’re proud to say that striking that balance is something we prioritise whenever we get involved in client audits – making sure you’ve got a clear understanding of your business’s financial performance, without interrupting the day job.
What are the benefits of an audit?
While for some larger businesses and charities audits are compulsory, they can be a helpful tool to think about, even if you’re not legally obliged to do so.
For one thing, having the rubber stamp of an external professional can be a real confidence booster for both directors and shareholders, who’ll know that your business is a tightly-run ship and that you’re following best practices where you can.
If you’re looking to grow, that same sense of confidence is important for both investors and lenders, too, as it adds reassurance and a sense of credibility that you know what you’re doing and are committed to doing things properly.
Finally, audits can be a great way to spot areas for improvement. While you might not like hearing that there are more efficient ways to do things, once you’ve implemented them and start to see the cost or time benefits, you’ll be glad the problem was spotted when it was.
The unbiased review of your business that an audit can give you is an invaluable foundation for building and improving. A fresh perspective from a well-experienced team could be just what you need.
If you’re interested in finding out more about how we could help with an audit for your business, get in touch today.