This is why an external audit is good for your business
“An external audit is good for your business”. Chartered accountants get a range of responses when they say this alternating between suspicion and bewilderment. Some business owners view an external audit as a time-consuming process offering few benefits other than statutory compliance. However, an external audit by the right advisers can be a valuable tool for any business.
In this insight, Audit Associate Director Brian Thomson outlines why an external audit is good for your business.
The benefits of an external audit
In the UK, an audit is required when a company breaches two or more of the small company thresholds: turnover above £10.2m; assets worth over £5.1m; or 50 or more employees. Regardless, there are business owners who are happy for their company to come under the same scrutiny as larger businesses, even though they don’t need to.
Business owners opting for a voluntary external audit do so because of the extensive benefits that can derive from outside scrutiny of financial processes and systems.
1. An audit helps improve financial reporting
An external audit involves a qualified accountant, called an auditor, examining your company’s financial statements to ensure they are accurate and fair. This includes accounting records, internal controls, and other relevant information that the accountant will use to form an opinion on the fairness of the financial statements.
2. Audits help increase management accountability
Your management team or individual Managing Director is responsible for the accuracy and fairness of your company’s financial statements. It can, however, be difficult for management to be objective when reviewing their work. An external audit can therefore provide a level of objectivity that management cannot.
The auditor will review management’s assertions about the financial statements and will challenge any information that they believe to be incorrect or misleading. This can help to prevent fraud and financial irregularities.
3. Audited accounts give banks and investors confidence
Banks and investors lending to your business need assurance that it is financially sound. While they may not always require audited financial statements, they often do. Thus, having an audited set of accounts can give potential investors and lenders more confidence in your figures.
4. Practice for when your business does breach the audit thresholds
If your business is approaching the audit thresholds it makes sense to look ahead and start planning for audit in the future. A voluntary audit can help identify any areas that management needs to resolve and make it easier to transition to an external audit when the time comes.
5. External audits help reassure shareholders
For directors and shareholders not involved in the day-to-day running of the business, an independent audit can give them the confidence that the company is functioning effectively and performing well financially.
6. Audited accounts can make a business more attractive to buyers
Any prospective buyer of your business will take confidence from the fact that the figures have been audited. It also demonstrates that the business has a positive attitude towards compliance and transparency.
7. An external audit improves internal systems and controls
An external audit can help to identify any weaknesses in your company’s internal controls. The auditor will make recommendations for improvement, and business owners/management can implement these recommendations to the benefit of the company.
Driving business growth through external audit
Consilium Chartered Accountants help businesses of all sizes realise the benefits of both statutory and voluntary audits. If you don’t feel like you are getting value from your audit, please get in touch with Brian Thomson to arrange an informal virtual or in-person appointment.
At Consilium we help business owners achieve their goals and our expert team is ready to help.