When is the best time to undertake a company audit?

A company audit comprises an impartial investigation into your financial statements to determine the accuracy and reliability for making investment and business decisions. The primary purpose is to assess whether (or not) your statements are a true and fair representation of your financial affairs and whether your accounts meet statutory regulations. For companies that require them by law, audits are usually carried out annually by an independent external auditor. In these cases, you must appoint an independent examiner – someone who is neither an employee, a financial stakeholder nor a retained consultant of your business. They will conduct tests on sample transactions and balances and issue their opinion in a statutory report.

Get In TouchIf your business is a start-up, or you operate a relatively small enterprise, your company may be exempt from statutory audit regulations. But as your company grows, so do your responsibilities, and annual audits could become a legal requirement. There are three main reasons why you might decide to undertake a company audit:

1. You may no longer meet the statutory audit exemption conditions
2. Your investors or shareholders could demand an audit as part of funding agreements
3. You want to avail yourself of the benefits of greater insights into your financial processes

At what stage does my company need an audit?

Smaller companies are usually exempt from audit requirements under UK law. 

If your company meets any two of the three tests below, you'll need to commission an audit on an annual basis at the end of your financial year. 

- Your annual turnover is in excess of £10.2m
- Your gross assets exceed £5.1m
- You employ 50 or more people

When else might my company need auditing?

Even if your company does not meet the exemption conditions, you may still be required to have an audit by your business stakeholders. Creditors or investors in your company sometimes stipulate audits as part of a funding agreement, and a recent audit can improve the chance of a successful application when applying for loans, grants, or funding. Investors, suppliers, and customers alike will want to be confident in the probity of your financial management, and an audit is a straightforward way to provide the requisite assurances.

For some businesses or organisations, an independent regulatory audit is needed to demonstrate eligibility for financial support or accreditation. Many government funding schemes, for example, require your company to comply with specific legal and professional codes of conduct and industry standards like the FCA (Financial Conduct Authority). Professional accreditation or corporate membership of regulatory bodies will often require similar proof of compliance.

Even if an audit is not formally required by other parties, there are still sound business reasons for conducting one. If you are looking for future funding or buyouts, bear in mind that a company with audited financials is likely to be more attractive to potential investors. Furthermore, if you are ever considering having an IPO, then an audit of your financial statements will also be necessary.

Discretionary audits

Finally, an audit can sometimes prove beneficial for your own business management. Unlike a legally mandated audit, a "discretionary audit" need not be carried out by an independent examiner. That said, an auditor employed by your business, however professional and good their intentions, may be subject to unconscious bias arising from their relationship with the organisation. A professional auditor is independent of bias and typically knows best how to audit a company, so may yet be the superior choice. 

Next steps

To discuss your auditing requirements with one of our experienced and accredited auditors, please call Arnold Hill & Co today on +44 (0)20 7306 9100.

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