How an external audit benefits your business

How an external audit benefits your business

Even if your business doesn’t fall within the audit threshold for requiring an audit legally, we have many clients who still choose to undertake an audit to ensure they get the valuable insights and assurance that an audit can give a business.

Why do businesses need to be audited?

It is a statutory requirement for many companies over a certain size and companies within certain groups to undertake an external audit. Sometimes, even though a company is small, it is stipulated in its Articles of Association that an audit is required. There are however certain exemptions available from requiring an audit. For example, stand-alone companies under certain thresholds are usually exempt from an audit if they meet two out of the three following criteria:

Turnover                                                           Less than or equal to £10.2m

Number of Employees                                   Less than or equal to 50 employees

Balance Sheet Total                                        Less than or equal to £5.1m

Changes in company size thresholds are due to be laid before parliament and are expected to come into effect on 6 April 2025 which will raise the turnover and balance sheet limits further.

Despite these thresholds, we have many clients who still choose to undertake an audit because of the many advantages an audit can bring to the business and the business owner.

The advantages of an external audit

We’re often asked by clients ‘What is the advantage of having an audit?’ The advantages are often missed by many business owners. But having an external auditor checking the accuracy of your management accounts and highlighting systematic errors throughout the year can ensure that mistakes are not continually made.

How does auditing help a business?

An external audit can help a business owner and a business in the following ways:

An audit provides credibility – Having an external auditor verify your financial statements will add credibility to the company to the wider market. If you’re an owner that’s looking to raise funds for growth or are beginning to plan your exit via a business sale, then having audited accounts can make it more likely that you will achieve your goals.

An audit helps improve internal systems and controls – When an auditor undertakes an audit of your business, they won’t just focus on your numbers and finances. An auditor will gain a good understanding of your business, the sector(s) it operates in and the risks it faces, and this makes them well placed to look at your business with a fresh pair of eyes. This enables them to look at systems & processes within the business and accounting systems and make recommendations for changes or improvements.

An audit can identify fraud – During the audit process, an auditor may identify fraud within a business.

An audit can help identify weaknesses & risk in a business – An audit can flag weaknesses and risk in a business. This will help you to take preventative or corrective action and reduce the risk in your business. An auditor should have a commercial perspective and be able to identify issues in areas such as contracts, over-dependencies in the business or weaknesses in systems and processes.

An audit can provide a platform to make commercial decisions – Often an audit can be a conduit that helps business owners make decisions now and, in the future, whether that be around changes in processes, systems or controls. An audit can provide the business case for change.

An audit can help to increase the value of your business – There are many factors which contribute to overall business value. Areas such as systems and controls are vital to a successful and growing business. Minimising risk in a business can add to its value.

An audit can give shareholders confidence – If you’re one of multiple directors in a business, then an external or internal audit that provides an independent review of the company’s financial statements, systems and controls, can give all shareholders in the business assurance that the financial statements and management accounts they receive are reliable. Often some shareholders may not be involved in the day to day running of the company and therefore this kind of reassurance can be crucial.

What is the impact of the audit on a company?

The impact on a business of undertaking the audit process shouldn’t be significant. Central to our audit approach at Haines Watts is communication and planning with you. We agree up front our audit process and timetable and plan our work carefully to address the key areas and not waste effort on unimportant matters.

We ensure clear communication of the audit approach and requirements and discuss any issues that arise as they are identified. This ensures a ‘No Surprises’ approach and the timely resolution of reporting matters.

Summary

An audit provides a high level of assurance over an organisations financial statements, and this is the reason that many companies choose to have an audit voluntarily. A focused audit can provide peace of mind to business owners, directors, investors, and potential future buyers. It allows business owners to know that an external party is making thorough checks on the business which can help to minimise risk, improve systems and processes and which provides assurance that its financial statements are fairly presented.

Want more information about a potential audit for your company? Contact us at our offices in Liverpool, Wirral or Chester.