If your business does not qualify as a ‘small’ company then in most instances you will be required to have a statutory audit. A company is defined as ‘small’ if for both this year and last year it was not ineligible, and it met two out of three of the following criteria:
- company turnover <£10.2 million;
- total company assets exceed < £5.1 million; or
- the company has less than 50 employees.
NB – there are current proposals that look set to be adopted to increase the turnover and asset figures by 50%.
‘Small’ companies who do not exceed these thresholds will typically be able to take advantage of an audit exemption, unless you are part of a larger group, the members have requested an audit, or because of the nature of the activities that you engage in.
An audit, whether statutory or voluntary, can seem like a daunting prospect to a business that has not experienced one before and, even if you have, it’s often seen as an arduous compliance exercise.
As auditors, our primary objective is to complete sufficient work to be able to issue an audit opinion on the financial statements. However, beyond that we aim to illustrate how the audit can be beneficial for your organisation, how it can facilitate growth and development, and how we can add value to the process.
What is the point of an audit?
An audit should be more than just a compliance exercise; whilst true that the overriding purpose is to issue an audit report that states whether or not the financial statements represent a ‘true and fair’ view, to do this successfully we have to understand how the business operates beyond just the numbers.
We believe that a good audit should add value to your business, particularly in respect of the following:
- Identifying weaknesses in your systems and internal controls – having properly designed systems and internal controls that are operating effectively is central to ensuring that your financial reporting is accurate, and that your assets are properly protected. Where our audit work identifies either design deficiencies or instances of controls not operating effectively, we can advise you on the improvements that could be made to achieve the control objective for each area of the business.
- What are your figures worth if they are not reliable? Having your financial statements audited adds credibility to your numbers. This is particularly important if you are considering a business sale in the near-term, or if you are going to be applying for funding of any kind.
- Detecting fraud – whilst not the primary purpose of an audit, there are still audit requirements to consider how and where fraud may occur. Where instances of fraud are identified, it must be decided whether or not they constitute a material misstatement overall in the accounts. As well as potentially identifying fraud, this part of the audit can help management with their own assessment of where fraud could occur and lead to improved systems and controls to prevent fraud as a result.
- Strategic discussion – beyond the ‘audit’ itself, the outcomes can give rise to some really valuable discussion between you and your auditor about the future of your company and the strategic plans you have.
- Operational decisions – a good audit should give management the confidence to make key operational decisions.
What does an audit entail?
Audit can seem a bit less intimidating when you understand what it entails, and what to expect. Generally, the process can be broken down into five key steps:
- Planning and risk assessment
Audits are undertaken using a risk based approach. A lot of time is spent at the planning stage, especially for a first year audit, to understand the nature of a company’s operations and where the significant risks of the audit are. This enables the audit to be undertaken as efficiently as possible to minimise disruption during the audit process. - Audit strategy and plan
Based on the above we will develop an overall strategy and detailed audit plan. We will communicate what deliverables we need from you before we can start the audit which is, again, to ensure the process is as efficient as it can be. An audit plan is always fluid to adapt to any issues that arise as our work progresses which may change the initial risk assessments etc. - Fieldwork
The fieldwork stage is generally done on site, although some aspects can be done remotely. This is where we will be carrying out substantive testing to gather sufficient evidence for each ‘area’ of the audit, and also where we test the systems and controls of the business. This is usually by way of a “walkthrough” test. A lot of testing is carried out using sampling techniques to check certain transactions against supporting evidence, however with new technologies, such as data analytics, now being used more readily, audit testing can now look at an entire data population and highlight possible irregular transactions. - Reporting
Based on the audit evidence we gather, we will assess if the financial statements give a ‘true and fair’ view of the organisations financial position, whether they comply with financial reporting standards and whether they are free from material misstatement. The audit report also covers whether the auditor believes the company will be a “going concern” for a minimum period of 12 months from that date of the audit report. - Finalisation
On completion of the audit we will discuss the results with management and those charged with governance. Our audit report will then be issued for inclusion in the financial statements. We will issue a report to management which will cover any significant issues on the audit and our recommendations for improvements. The report would also cover both adjusted and unadjusted misstatements in the accounts. The report to management is really useful for making improvements within the business, to make financial reporting more accurate, and in helping to prevent fraud.
Our approach to audits
We can help you to meet your audit obligations; whether a statutory audit to comply with UK law, or a voluntary audit for the benefit of your business.
We turn what many business-owners view as a ‘regulatory burden’ into a useful review of your financial statements which can be invaluable when it comes to decision-making and forward planning.
We tailor our audit approach to suit you and to meet your deadlines and goals, keep you informed at every stage of the process, and we deliver audit reports and management reports designed to help you improve your business and ensure that your internal controls and systems operate effectively and efficiently.
To talk to us about our audit and assurance services, contact one of our offices in Hertfordshire, Bedfordshire or Cambridgeshire.
