What is an audit and why is it needed?
An audit is the independent examination of an organisation’s financial records, which includes a review of risk management procedures, internal controls and compliance with legal and regulatory requirements. The auditor will produce a report for inclusion within the financial statements and may also report to the directors with recommendations for improvement.
The goal of an audit is to provide assurance that your company is managing its risks effectively and that its financial statements are accurate. Mandatory audits are required by law while voluntary audits are conducted at the discretion of a company.
How valuable is an audit?
An audit can be a powerful tool, providing the following benefits for your business:
- Identify opportunities for improvement and growth
The information an audit provides can be vital in helping make business decisions. Recommendations in the auditor’s management letter can be used as a key aspect of your board’s quarterly strategic planning.
These recommendations can cover aspects of improving internal controls to reduce the risk of fraud and errors and may identify opportunities for improvement to help your business operate more efficiently.
Through their analysis, an auditor can highlight where there are opportunities to reduce costs or increase profitability. Comprehensive management information and an acute understanding of your business’ key profitability drivers can be used to actively manage and drive improved business performance, as well as being really useful during the sale process.
An audit team with their ‘radar’ attuned to the right things will also bring to the attention of management other matters than can affect risk and value – including an absence of key commercial contracts, over-reliance on key members of staff/customers/suppliers and gaps in the management team. It is the role of an adviser to challenge management’s assumptions and alert them to best practice. They will also highlight new developments in legislation, allowing businesses to plan for upcoming changes in advance.
- Increase transparency and credibility
An audit helps to increase transparency, which provides assurance to stakeholders and potential investors that your financial statements are accurate and reliable. Lenders or investors may want your financial statements audited before they will provide funding or invest as they need to be confident your business is financially sound before taking on any risk.
Meanwhile, ensuring that your business is properly prepared for a due diligence process, not only greatly reduces the stress of a business sale but also delivers enhanced comfort and confidence to buyers, reducing the perception of risk.
- Protect business reputation
Similarly, an audit will help improve your overall risk management and governance policies, which can make your business more resilient to unexpected events and protect its reputation.
A robust approach to corporate governance reduces the perception of risk to a prospective buyer, while simultaneously assuring the buyer that any ‘post-deal’ transition will be as seamless as possible, and an excellent compliance record and attitude to compliance, particularly with regard to HM Revenue & Customs, will always reduce the perceived risk to investors and acquirers.
Better communication
Another added benefit, and one benefit that is often overlooked, is improved communication, both in terms of frequency and the quality of interaction with your advisers. With regular meetings, your adviser will have a greater understanding of your long-term ambitions, meaning to audit process can be aligned with these goals.
To find out how an audit could benefit and add value to your business, please contact us for more information.