An audit is a distant concern for most small businesses operating in the UK. Though the Companies House stipulates every business submit their annual company accounts each year, small companies meeting the exemption thresholds don’t need to be audited.
A financial audit is known to be arduous unless you understand its benefits to businesses of any size. Small business audit services ensure compliance and financial transparency, building reputation and trust.
This comprehensive guide will disclose the needs of a small business auditor and how an audit can be beneficial to small companies.
Table of Content
What is an audit?
An audit is an assessment of the financial accounts of a company or institution to ensure whether the financial statements present a true and fair view and meet all relevant guidelines and legal requirements. On the other hand, it allows companies to guard themselves against potential risks and helps make sound decisions for the business’s future.
The objective scrutiny of an audit adds value to the process and helps management to reduce inaccurate reportign and reduce inconsistencies.
UK-based companies mainly undergo four types of audits: financial, compliance, statutory and tax audits.
When do small businesses have an audit?
Small businesses breaching any of the two audit thresholds must have an audit. The audit thresholds for the present years include:
● Annual business turnover is £10.2m or less
● Total assets worth £5.1m or less
● The company has 50 employees or less
You must have an audit if your company is part of a large group that breaches two of the above thresholds.
Another condition for small business audits is when shareholders, investors, or regulators ask for it or your company’s article of association mandates it.
Finally, small companies can audit from their own will to keep their business processes clear and transparent, follow government regulations and industry standards, and maintain accuracy in financial records and tax returns.
Here are a few other reasons why your business needs an audit:
● Your company has issued securities to the public and is listed on a recognised stock exchange or is regulated by one of the financial industry regulators like the Financial Conduct Authority
● Your company provide financial services like accountants and investment advisors
● Certain charities and not-for-profit organisations may require an audit by law or ask by their governing bodies
● If you are running an insurance company
● If you’re running a charity with an annual income of over £1 million or total assets worth more than £3.26 million and £250,000 annual turnover and businesses in the public sector like local authorities
Why should I opt for voluntary audits?
Is your business currently eligible for audit exemption? It sounds fantastic as you have fewer burdens, but audits can benefit companies of any size in numerous ways.
Here are a few situations when you can opt for voluntary audits; a small business auditor can help you.
● Business is growing rapidly
● Your business is expanded into a new market
● You are losing money but unsure about why
● Planning to sell your business
Even if none of these applies to your business, there can be some other reasons for voluntary audits, like
● To increase the credibility of your business such that shareholders and potential investors see fewer risks
● To ensure financial transparency, such that customers and suppliers feel you have nothing to hide.
● To secure a business loan
● To spot errors or weaknesses in your business model that you might have missed
● To avoid making costly mistakes for not following government laws
● To make informed decisions about business future
What happens during an audit?
Internal and External auditors are mainly two kinds of auditors in the UK. An internal auditor can be an employee of your business, whereas an external auditor is an independent professional invited by the shareholders.
An auditor walks into your business and examines your financial processes, records, company accounts, tax returns, and other sections that need to be audited. However, on the first audit day, the auditors state what they will audit and why.
They gain an overview and understanding of your company and consider any external factor that has impacted your business during the reporting period.
They look into the financial information, identify, consider and assess any risk, and investigate the company’s infrastructure to check what protocols they have been using to mitigate these risks.
Auditors then look for other risks associated with business processes, compliance and tax, if needed.
Finally, they prepare a report depending on all the findings and give you feedback on where to improve. These reports can be sent to shareholders, investors, or the public to ensure you have nothing to hide and your business maintains compliance and transparency.
What are the benefits of an audit to small businesses?
You can ask a small business auditor UK to help you do an audit once a year. It helps your company in several ways.
● Offers an independent and objective overview of your business financial information
● Protects your business from potential risks, thus reducing the cost of borrowing money and enhancing your reputation with existing and potential customers, suppliers and partners
● Detects fraudulent activities, misstatements or errors on financial reports and misconduct in business
● Ensures your business follows statutory obligations and industry standards
● Helps in identifying weaknesses in internal controls that can affect business process
● Ensures you pay the correct taxes and doesn’t trigger HMRC audits
● Prepares reports that build investors’ and shareholders’ trust in your company’s conduct
Conclusion
Audits can be expensive for small businesses, especially the ones on tight budgets, but they bring numerous benefits to businesses. You can also hire an accountant for basic auditing, but for advanced audit services, you need an auditor. However, a freelancer auditor or outsourcing to an auditing firm can meet your requirements at an affordable quotation.
