The Benefits of an audit beyond the legal requirements

Despite the fact that audits need to take place from a legal point of view, a business can benefit a lot more from audits than they may initially believe. They can provide valuable information that can help businesses grow and prosper. Here we explain the benefits of an audit beyond the mere legal requirements.

Satisfy the legal requirements

We have to address the fact that certain companies must have audits done regularly in accordance with the law. Some private limited businesses can qualify for an audit exemption if any two of the following factors are applicable

• The company has an annual turnover of no more than £10.2 million
• Their assets are worth no more than £5.1 million
• They have 50 or less employees

Despite many companies not legally having to complete regular audits, it is something they still might want to still carry out and can do this voluntarily, so they can see the benefits of an audit, like the wealth of information they provide.

Provides financial certainty

Keeping track of a business’s finances can be difficult and overwhelming which is why an audit can come in extremely useful. One of the benefits of an audit is it will automatically provide the company with accurate, up-to-date financial information that the company can then go on to use productively. For example, they can take this information in order to improve reporting systems or increase shareholder confidence.

Shareholders of many companies have limited involvement in the day-to-day operations of the business. So having an external auditor, who is independent of the business, create the financial statements can help provide transparency to all shareholders and can highlight any issues that need to be brought to their attention.

Assesses effectiveness of in-house team

Audits that are carried out externally mean that you will have financial information that is accurate which can potentially act as an assessment of your in-house finance team. Whilst you do not want to assume your in-house team is making mistakes, one of the benefits of an audit is ensuring everything is being calculated and carried out correctly. If anything is flagged up which shows the in-house team has been making mistakes, then at least you know and can therefore fix any issues with internal processes.

Auditors do not just focus on numbers, they will also gain an understanding of the financial processes of the company. Any weaknesses in the current accounting procedures will immediately be highlighted, meaning you can make the relevant changes and help ensure the in-house procedures are more streamlined and effective moving forward. Sometimes you need a fresh view from an external source to point out what is and isn’t working within internal processes.

Help detect fraud

A major benefit of having audits done by an external source is that fraud can be easily identified. From tampering with payroll to employee theft, there are unfortunately many types of fraudulent activity that can happen internally. Having an external audit will not only help identify these malpractices and safeguard the companies assets, ensuring audits are happening regularly act as a huge deterrent and can prevent fraud from happening in the first place.

Enhanced Credibility

Credibility is another one of the benefits of an audit. Having an audit means you have access to recent financial statements that have been put together by a team of external experts. Having this sort of financial information verified by an external auditor can enhance the credibility of the financial statements than those created solely in-house. This, in turn, can help improve the credibility of the company as a whole. Providing audited accounts provides security that your accounts are free from bias, malpractice, or internal errors and can therefore be used to help achieve your business goals whether this is promoting your business or trying to obtain investment.

Help with obtaining loans

The financial information gathered by the auditors can be used to help obtain additional financing for companies. Taking these figures directly to a bank or investors will provide them with a lot more confidence in the financial position of the company than if the figures are solely from an internal source as opposed to an official audit.

Helps enhance budgeting and forecasting

The audit information does not only provide the business with clarity of its current financial situation. As the figures are accurate, up to date and potentially more in-depth than any figures you have internally calculated, a business can use these audit numbers to help provide more accurate reporting and can plug these numbers in to create more accurate budgeting and forecasting for future years.

Can provide advice

In order to do an accurate job, auditors need to thoroughly understand how your business works from a financial point of view and they get to know a business well by analysing their figures. This means that by the end of the auditing process, auditors will be able to offer you advice that is tailored to both your figures and your particular business. For example, they may be able to highlight certain areas of the business that are not as financially viable and therefore should be an area that is analysed for cost-cutting. This sort of advice from an external source can be vital when making future key business decisions.

As this article has highlighted, undertaking an audit provides an important and invaluable insight. The audit can be used to determine whether a business is portraying a fair and accurate view of its financial performance which can be used in a myriad of ways. The information in the audits can help the business make vital decisions that will determine their future and should not be dreaded or classed as an inconvenience. Companies should therefore be eager to have audits completed on a regular basis so they can see the benefits of an audit, and not just see them as something that are required to do by law.