What is an audit and what are the benefits?

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At the end of each financial year the directors are required to prepare financial statements for that year in accordance with company law and accountancy standards. Those financial statements may be subject to an audit because it is a requirement under company law or one has been requested by the directors, shareholders or to meet a regulatory requirement. Often clients see an audit as a compliance burden or that they are being checked upon. And yes an auditor does have to perform certain checks but this is because at the end of the audit process they will give their opinion via their report which is included in the financial statements.

What is an audit?

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.This includes an assessment of: whether the accounting policies are appropriate to the entity’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

What are the benefits of an audit?

So what are these benefits that you should be seeing at the conclusion of the audit?

1. Gives your business credibility

The main benefit of audited financial statements is it gives creditability to them in that an independent qualified external party has been appointed to examine them.

2. Highlights business weaknesses and recommends solutions

The auditor will report to the directors on weaknesses in the systems and controls in the accounting system that have been identified during the audit and will make recommendations that can prevent fraud and error. This can lead to real financial benefits to the company. If the financial statements are subject to annual audit then that this can help to deter fraud.

3. Enables Shareholders to make better business decisions

It enables them to have confidence that the financial statements are not materially misstated and free from any management bias to manipulate the financial results, which can lead to better decision making. This can be important where the shareholders are looking to sell the company as audited financial statements add credibility and reliability and therefore can help with negotiations.

4. Gives confidence to potential providers of finance

Providers of finance such as banks or suppliers will have more confidence in audited financial statements and may even insist on audited financial statements as a condition of lending or providing credit.

5. Can help keep employees, customers and even the tax man happy

There are other stakeholders who will have an interest in the company such as employees and customers and so audited financial statements will provide them with comfort that they may be looking for. Tax authorities will also have more confidence in the financial statements.

How can Wisteria help?

As a firm of chartered accountants and registered auditors we have been able show our clients that this is more than just a box ticking exercise but a value adding service. If you would like to know more how an audit of your company’s financial statements could help you then please contact us.

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