Most directors consider the annual audit to be a necessary costly evil, however if it is dealt with in the right way it can help you to improve your business.
- Identifying weaknesses within the internal control of the business
An external auditor is not only tasked with verifying if a company’s financial information is correct but also that the process used to report and compile that financial information has enough internal controls in place to reduce the chance of misreporting or fraud. A review of the internal controls by the auditor will include:
- ensuring an adequate paper trail – essential if the company is ever subjected to a HMRC tax investigation;
- review of the financial systems used to process the information – advise of better products or services which would better suit the business;
- review of segregation of duties among employees – although not always possible in smaller businesses, a certain level of segregation is essential to safeguard fraud and human error.
At the end of an audit auditors are required to provide you with a list of “weaknesses” which they have identified, although some directors take this as a criticism of their work. If reviewed correctly and suggestions implemented, this will not only help with a smoother audit but should provide efficiencies and improvements in the day-to-day running of the business.
- Lends credibility to the accounts
Financial statements that have been audited and verified by an external auditor are considered more reliable than those that have not. Lenders often require externally-audited accounts as a term of a loan, however quite often suppliers or potential customers will also review your financial statements. Quite often offer better terms can be agreed if the company has audited accounts as they provide some security that the accounts are free from error and that the company is less likely to have committed fraud.
- Unbiased Expert Recommendation
External auditors are trained specifically to focus on tightening and improving business procedures without letting their judgement be clouded by personal favouritisms, which may be the case for the business’ current management. Directors may often delay implementing changes as they may think this will take a long time and deviate from the company’s core activities, however an auditor works with the single-minded purpose of improving the business’ systems.