Audit - a necessary evil? We don't think so!

As accountants we are regularly asked why it is important for businesses to have their accounts audited. Not all businesses require an audit and therefore in many cases electing to have an audit is an optional issue. We believe that there are benefits from having an audit whether required by law, some other body or the shareholders. An audit is the examination of an entity’s accounts and the underlying records to ensure that they show a true and fair view of the state of affairs of that entity for a period and at a certain date. Although there is a cost to the work involved there are a number of advantages of having an audit carried out.

Company directors are required by law to know exactly where their business is at any point in time and the comfort that comes from an independent audit can provide them with a reassurance that the figures the directors are looking at are materially correct.

Quite apart from the legal requirement directors need to know themselves that the figures are correct and also that their company has procedures in place to produce accurate data and safeguard the assets of the company. An auditor will review not only the figures but also that the internal controls in place will reduce the chance of misreporting or fraud. If the figures are right then the director has every chance of making correct business decisions.

Apart from management’s benefit of the audit there will be other users of the company’s accounting information that will gain comfort from knowing that the company takes itself seriously enough to invest in the audit. The company and the accounts will gain credibility to the outside world that will help its business with suppliers, staff, banks, HMRC and potential purchasers.

Indeed banks may require audited figures to support borrowing applications and some sectors governing bodies may require them for licence applications etc.

A purchaser of a business will do its own due diligence but will gain a certain degree of comfort from the credibility offered by the audited company and its accounts. It will gain further comfort if there is a history of audited figures and systems hence it is often a good idea to think ahead and if planning a sale start the audit process to build up that track record.

As Chartered Accountants we exert a duty of care whenever we prepare a client’s accounts but the audit takes matters much further and into the checking of the company systems. Indeed a full management report of internal control weaknesses will be produced after each audit assignment. There are techniques in modern day auditing that ensure the costs do not outweigh the potential benefits so that value for money can be achieved.

Even if your company does not currently exceed two of the three criteria, ie turnover £6.5m, net assets £3.26m and staff numbers of 50, we believe that a cost effective audit is well worth considering.

Please contact Catherine Edwards if you would like to discuss audit options for your business.