Some business owners view a statutory audit as a necessary evil that is nothing more than a process required by law. But what are the benefits, and can the process be utilised to transform and grow your business, supporting you to achieve your personal and business ambitions?
What is a statutory audit?
A statutory audit is an independent assessment of the financial accounts of a company or institution, with the auditor’s role being to report on whether the financial statements issued by an organisation are ‘true and fair’ and meet all relevant guidelines and legal requirements. It’s vital that auditors recognise and report on any issues that emerge from the auditing process, so that any problems within the business can be addressed. This is an area where companies can realise added value from an auditor; there are huge benefits of working with a team of experts who know your business extremely well and are excellently placed to offer specialist advice, ultimately helping you achieve your goals.
What are the requirements of a statutory audit?
Not all organisations must undertake a statutory audit, with small companies usually exempt, unless they are charities (which must follow the specific guidelines for that sector) or members of a wider group.
To be exempt from an audit, a small company must currently meet two out of three of the below criteria for two consecutive years (or in the first year for new companies):
- Turnover should not exceed £10.2million
- Balance sheet total must be below £5.1million
- Average number of employees below 50
It is important to note that even if your company meets the conditions outlined above, there may still be instances where a statutory audit is required, for example by request of a shareholder, lender or grant provider.
Certain companies, whatever their size, are always subject to a statutory audit in order to ensure transparency and efficiency which includes banks or investment firms, insurance firms and public companies.
If you are unsure whether the audit exemption applies to your business, check with your adviser as there are heavy fines for failing to comply with auditing regulations.
More than just a necessary evil – the benefits of a statutory audit
It is absolutely worth thinking about the value an audit can offer, even if your company is below the thresholds highlighted above.
A statutory audit:
- Gives you the opportunity to speak to a team of experts who understand your business and receive advice on financial processes which can be improved, through to strategic advice to achieve your, and the business’s, growth ambitions
- Can help companies secure access to funding as verified financial statements can lead to more credibility in the business marketplace
- Prepare a company for sale by completing due diligence prior to a transaction, hereby potentially influencing price, reducing warranties and making the business much more attractive to prospective buyers
- Can be used as a communication piece to tell the company’s story. Many larger companies use their accounts as a marketing tool to ensure transparency and increase authenticity as well as appealing to existing and future talent or investors
How to find an auditor that’s right for you
In the current regulatory environment, it’s paramount to choose an audit firm which is fit for purpose for your business. Over the past couple of years, there has been a shift from ‘big six’ clients looking to move to mid-tier firms, as larger auditors shift their efforts to supporting more complex, listed companies which require more specialist audit or advisory work. Similarly, many of the top 20 firms are seeking to either provide advisory services to their clients or to provide audit services, but no longer providing both. We are seeing significant change in businesses needing to seek new auditors due to these strategic changes in the larger firms.
Ask yourself the questions:
- Does the auditor have the size and scale to service your business?
- Will they treat you as priority client, and work with you outside of the core statutory audit work to offer expert advice?
- Do they work with similar businesses, in terms of sector, size and location?
- Is there sufficient resource available to meet your timetable expectations?
- Who will lead the audit? What experience do they have, are they a good fit for you and what types of businesses have they worked with previously?
Get in touch
Our expert team can guide you through the complex world of regulation and compliance to ensure you meet your statutory obligation, whilst helping you make the most of your audit by gaining additional insight into your business and supporting you in achieving your goals. Get in touch to discuss our audit services in more detail by emailing enquiries@pmm.co.uk or calling 01254 679131.
