What is an audit?
The audit process is an examination and verification of a company’s financial records, transactions, and processes to ensure accuracy, compliance with laws and regulations, and the overall integrity of the financial information. Typically conducted by independent auditors, they can encompass various aspects of a business, including financial statements, internal controls, tax compliance, and operational efficiency.
Who requires an audit?
You may be legally required to have an audit depending on your company’s size and annual turnover. Most private companies will need a statutory audit if it has two of the following:
- more than £10.2 million in turnover
- assets in excess of £5.1 million
- more than 50 employees.
Smaller companies outside of the above requirements don’t usually need to worry about compulsory audits, however, it is important to note that they are not always exempt.
If shareholders who own 10% or more of your business formally request an audit, one will have to be carried out by law regardless of whether you meet the above criteria or not. An audit will also be necessary if the company’s articles of association require.
Additionally, if your company is a registered charity with an annual income of £25,000 or more, the Charity Commission will require you to undergo an independent examination of your accounts. Only larger charities with incomes greater than £1 million will need a full external audit.
How often is an audit required?
Unless your company is exempt, you’ll need to carry out an audit every year. You’ll have up to nine months after the end of each financial year to complete your audit and submit it to both HMRC and Companies House.
Different types of companies need to follow different rules. For example, regular audits are compulsory for public companies, subsidiary companies and companies working in banking or insurance.
Preparing for an audit:
For a successful audit, a business should:
Maintain accurate accounting records: Ensure all financial records, transactions, and supporting documentation are accurate, complete, and well-organised.
Have strong internal controls: Establish and maintain strong internal controls to safeguard assets and ensure the integrity of financial data.
Be compliant: Ensure compliance with relevant laws, regulations, and accounting standards.
Documentation: Maintain clear and thorough documentation of all financial transactions and processes.
Work in partnership with auditors: Provide auditors with access to all necessary information, answer their questions, and address any concerns promptly.
Address previous issues: If there were any issues identified in prior audits, make sure they have been resolved before the next audit.
Engage or train an employee who understands the process: Train relevant employees on audit procedures and the importance of compliance and accuracy in financial reporting.
Appoint a qualified auditor: Choose a reputable firm with experience in your industry to conduct the audit.
A well-executed audit can provide numerous benefits to a business, including enhanced credibility, improved financial transparency, and reduced risk. It is a valuable tool for both management and stakeholders in assessing a company’s financial health and compliance with regulations.
Get in touch
Choosing the right auditor to perform your audit is a critical decision for your business. For more information on how we can help, or to discuss your particular circumstances, please contact Ceri Dixon using the button below to discuss further.