Many businesses in the UK are required to have a statutory audit; generally, those who meet any two of the following criteria:
- company turnover exceeds £10.2 million;
- total company assets exceed £5.1 million; or
- the company has more than 50 employees.
Companies below these thresholds are usually termed ‘small’ companies – typically, they can take advantage of audit exemption.
However, there are other factors that can necessitate a statutory audit such as being part of a group that is not small or being a company or part of a group that is ineligible due to the activities it undertakes (i.e. financial services companies).
The members of any company can also request an audit, if more than 10% want this to happen.
If your business is currently exempt, it may be difficult to comprehend why you would opt to have a voluntary audit carried out; particularly as 25% of UK respondents do not understand the role of an auditor, according to a recent survey by the Association of Chartered Certified Accountants (ACCA).
Put simply, audit is not only beneficial for organisations which are bound by law to have one, but also for those go-getting and fast-growing businesses.
The audit process is more than just a compliance service; the primary objective may be to issue an audit report that says whether the financial statements represent a “true and fair” view but, to arrive at this conclusion, an auditor must consider the companies broader activities.
The auditor will need to get to grips with the risk of fraud within a business, but also the robustness and operating effectiveness of internal systems and controls. Where these areas are concerned, external scrutiny will undoubtedly add value to the audit process and help the management team to reduce the risk of fraud or errors occurring.
A report to management is produced by the auditor, detailing any weaknesses identified and suggesting improvements that could be made.
Substantive testing undertaken as part of the audit can also help to identify errors or irregularities within the accounts and could highlight wider issues in respect of cut-off, or stock valuation, which can affect the management information a business produces and relies upon to make strategic decisions.
With new technologies, such as data analytics, now being used more widely outside of the big four audit firms, an audit may involve some testing on a company’s entire data population and highlighting possible irregular transactions, in contrast to more traditional auditing that only looked at a sample of data.
Having an audited set of financial statements will always be advantageous; it provides assurance and credibility in respect of your figures, which can give comfort to any interested parties (e.g. banks and shareholders). Audited accounts are also useful for any business looking to sell, as it offers reassurance to prospective buyers.
Fast-growing businesses should bear in mind that, even though they may be exempt now, they could quickly exceed the aforementioned audit thresholds.
There is typically a qualification in an audit report, for the first year the company is audited, to say that the comparative figures are not audited, so opting in earlier, to get this out of the way, and familiarising yourself with the audit process can stand you in good stead before a statutory audit is required.
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 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 find out more, visit www.georgehay.co.uk
 ACCA (2019) Closing the expectation gap in audit <https://www.accaglobal.com/content/dam/ACCA_Global/professional-insights/Expectation-gap/pi-closing-expectation-gap-audit.pdf> accessed on 18 July 2019.