How to prepare your business for an audit

Nov 24, 2023 | Audit, Business

Audits are integral to ensuring financial compliance and are particularly relevant to public companies, charities and startups seeking investment.

The scope and detail of each audit will vary depending on the size of the company, its industry and any requirements specified by shareholders, investors, or acquirers. The auditing process also differs for charities and businesses in regulated sectors like finance.

In any case, however, the goal of an audit is to obtain a thorough, objective account of an entity’s finances.

Here’s how and when to plan and prepare for an audit.

Audits: mandatory or optional?

All public limited companies must undergo mandatory audits. Private companies must also undergo audits if they meet two of the following criteria:

  • a turnover of more than £10.2 million
  • assets over £5.1 million
  • a workforce exceeding 50 employees.

Charities with an income of more than £25,000 must also typically be audited by an external auditor.

Additionally, specific industries, such as financial services, are subject to mandatory audits due to the nature of their operations and the associated financial risks.

Voluntary audits

Aside from mandatory requirements, companies may opt for voluntary audits for several reasons:

  • Enhanced credibility: A voluntary audit can enhance a company’s credibility with stakeholders such as investors, creditors and customers.
  • Preparation for growth or investment: Companies seeking growth, investment, or mergers and acquisitions might undergo voluntary audits to demonstrate financial solidity and transparency.
  • Internal improvement: Voluntary audits can also be a tool for internal improvement, allowing business leaders to identify weaknesses in financial processes and controls.

Audits in mergers and acquisitions

In the context of mergers and acquisitions, audits provide a detailed and reliable picture of a company’s financial health, which is vital for both buyers and sellers.

For buyers, an audit offers assurance about the accuracy of the seller’s financial information. For sellers, a clean audit report can increase the attractiveness and value of their business.

Shareholder-requested audits

In addition to the above, shareholders holding at least 10% of the shares can request an audit, assuring transparency and accountability in a company’s financial reporting.

Navigating the audit process

Auditors thoroughly assess a company’s financial health.

They go beyond just reviewing bank statements and invoices by scrutinising payroll records and transaction histories and performing in-depth analyses of individual transactions.

During the process, auditors may also also interview key personnel. These interviews are essential for gaining insights into the company’s financial processes and controls.

This can provide auditors with context to the numbers and help them understand how financial data is recorded and managed.

While the scope of an audit will vary, the fundamental goal is to obtain an objective account of finances and financial functions.

Preparing for the audit

Here’s a general overview of how to go about preparing for an audit:

Organising financial records

The first step in audit preparation is organising financial records. This involves ensuring that all documents, including bank statements, invoices, contracts, and receipts, are complete, accurate and ready. An auditor should be able to easily access and understand your financial history.

Strengthening internal controls

Internal controls are mechanisms within a business designed to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. Reviewing and improving these controls is critical.

Effective internal controls are the first line of defence in ensuring accurate financial reporting and minimising the risk of errors or irregularities.

Team Preparation

An audit is a company-wide endeavour. Key personnel should be prepared to engage with auditors, especially those in finance, accounting and management roles.

They should understand the audit process and be ready to provide detailed explanations and documentation as required. This includes being open to questions and able to clarify financial practices and decisions.

Understanding regulatory standards

It’s crucial to stay up-to-date with the latest accounting standards and regulatory requirements to ensure that your financial reporting aligns with current laws and practices.

Seeking professional assistance

Given the complexity and importance of audits, seeking advice is essential. Accounting experts and consultants can guide you through the audit process.

A professional accountant can help you understand the auditor’s expectations, ensure your financial records are in order, and advise on improving your financial processes and controls.

If, like Simpson Wreford, your accountant offers auditing services, their expertise can make the audit process smoother and more efficient, providing insights that enhance your financial health beyond the audit.

Summing up

While often viewed as a compliance requirement, an audit is much more than that.
It’s also a critical opportunity to gain in-depth insights into your financial operations and strengthen your business’s credibility.

Ensuring your financial records are always organised can streamline the process, minimising disruptions.

You can leverage this regulatory exercise into a valuable tool by approaching it in the right way, with experts by your side.

If you require an audit for any purpose, mandatory or voluntary, contact our specialists at Simpson Wreford.

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