What is an audit and do I need one?

Whether you need a statutory audit or you choose to have an audit for other business reasons, you’ll wind up with a far better understanding of your business. Auditors review your financial operations, make suggestions about improvements and best practice, and help management in identifying and controlling business risks.

Jade Quaintance, Audit and Accounts Manager, describes what an audit is and how it can be beneficial to organisations. She also highlights some key areas to consider, including exemptions and exceptions to the rules.

What is an audit?

Two questions I get asked a lot are what is an audit and do I need one?

An audit is an independent piece of work where the objective is to form an opinion of whether the financial statements show a true and fair view and have been properly prepared in accordance with accounting standards.

It involves a registered auditor undertaking a series of work involving discussions, testing, reviewing systems and controls and corroboration to evidence to ensure that the figures in the accounts are free from material error. An auditor will not check every item in your accounts.

Benefits of an audit

An audit can provide many different benefits to different people. Here are some examples:

• It can provide credibility in the marketplace compared to those that are not audited
• It provides shareholder confidence, especially to those businesses where the owners are removed from the day to day running
• Weaknesses in systems and controls are highlighted to you to help reduce the risk of fraud and error
• It can provide confidence to Trustees of charities and shows good governance
• It can act as a deterrent for fraud by employees

Do I need an audit?

Under the Companies Act 2006 a company’s annual accounts must be audited unless they meet the exemption criteria as follows:

• Being a small company (see below)
• Being a small member of a small worldwide group
• Any sized company in the UK with a parent guarantee
• A dormant company (a company which has no significant accounts transactions)

However, even if the above exemptions are met if a member with 10% or more of the shareholding (individual members or combined) requests and audit or the company’s articles state the annual accounts must be audited then you will need an audit.

How to determine if I am small

A small company is one which in the current year and two preceding years has:

• Annual turnover of no more than £10.2 million
• Assets of no more than £5.1 million
• 50 or fewer employees

Exceptions to the rule

There are some companies however which regardless of size must have an audit and these are:

• a public company
• an authorised insurance company
• a banking company
• an e-money issuer
• a MiFID investment firm
• a UCITS management company
• a company which carries on insurance market activity
• a scheme funder of a Master Trust scheme within the meanings given by section 39(1) of the Pension Schemes Act 2017 (interpretation of Part 1); or
• a special register body as defined in s117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52) or an employers’ association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (SI 1992/807 (NI 5))

How can Haines Watts help?

We advise clients on a broad range of audit and compliance related matters throughout Exeter and the South West.

Trying to work out if you need an audit is not always straight forward as you may think.

If you would like to have a conversation about our audit services or have a general query, please get in touch with your usual Haines Watts contact.