As your business grows so do your responsibilities and an audit is no exception. Once you reach a certain size you have to have one by law; so it’s important to know your statutory requirements.
Technology is changing audit procedures making them more efficient and accurate. Cognitive computing, artificial intelligence, data analytics and cloud based solutions mean auditors can complete audits faster, more accurately and focus on judgement.
But while it may seem scary at first there are many benefits to knowing your numbers a little better. In this article we’ll look at those benefits and the audit requirements for different companies.
What is an Audit?
An audit is an independent review of a company’s financial records and statements to ensure they are accurate and compliant with the relevant laws and regulations. This is key to building trust and confidence with stakeholders, investors, shareholders and customers. During an audit a thorough examination of a company’s financial transactions, accounting records and internal controls is carried out to identify any material errors or irregularities. By providing an independent view an audit ensures a company’s financial statements are a true and fair view of the company’s financial position.
When do I need to be audited?
You may need an audit if your company is large enough and has a turnover of £10.2 million or more. Most private companies that need an audit will need a statutory audit if they meet two of the following:
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more than £10.2 million in turnover
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assets of £5.1 million or more
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50 or more employees.
Smaller companies don’t need to worry about compulsory audits but they’re not always exempt. Under the small companies regime these businesses can disclose less information in their financial statements but must still comply with certain regulatory requirements. If shareholders who own 10% or more of your business formally request an audit you’ll have to do one by law regardless of whether you meet the above criteria or not.
An audit will also be required if your company’s articles of association require it – but you can change this with shareholder approval.
Unless you’re exempt you’ll need to have an audit every year. You have up to 9 months after the end of each financial year to complete your audit and file it with HMRC and Companies House. Internal audits identify flaws in processes before external audits. Internal auditors look at internal operations and controls.
Different types of companies, including subsidiary companies, have different rules. For example, public companies, subsidiary companies and companies in banking or insurance need regular audits. Internal audits are often done to ensure compliance with laws and regulations.
If your company is a registered charity with an income of £25,000 or more the Charity Commission will require you to have an independent examination of your accounts. Only larger charities with an income of over £1 million will need a full external audit. External auditors give an objective opinion on financial statements.
Voluntary audits and audit requirements for private companies
Many business owners dread audits but your company may benefit from one even if it’s not compulsory.
For example, a full review of your accounts will help you plan ahead better. Auditors will also highlight issues so you can deal with them early on and ensure financial information is accurate and fair.
A voluntary audit will also help you stay compliant before you meet the criteria for a statutory audit in the future. It will maintain accurate financial reporting which is key to compliance with the laws and regulations.
If you’re selling your business an audit will help you gain credibility with buyers and get the best price possible.
Audit Exemption
Small companies as defined by the Companies Act 2006 are exempt from an audit. To be a small company a business must meet at least two of the following: a turnover of £10.2 million or less, a balance sheet total of £5.1 million or less and 50 or fewer employees. Even if a company is exempt from an audit it may still choose to have one. A voluntary audit can improve the quality of the financial information, improve credit ratings and provide valuable insights into the company’s financial position. This can be particularly useful for companies looking to attract investors or raise finance.
Company Types and Audit Requirements
Different types of companies have different audit requirements. Public companies, financial services companies and insurance companies need an audit because of the nature of their business and the need for regulatory compliance. Private companies can be exempt from an audit if they meet the small company criteria in the Companies Act 2006. Subsidiary companies can also be exempt from an audit if they meet certain conditions and their parent company provides a guarantee. Knowing your audit requirements is key to compliance with the relevant laws and regulations to avoid penalties and maintain your reputation.
Choosing the right auditor
When the time comes you need to choose the right people to do your audit. Working with professionals who have experience of auditing businesses like yours will make the process as painless as possible.
You can rely on us to do an audit with purpose. Our audit services will help you comply but we’ll also use our expertise to identify areas for improvement in your finances so you can improve your business.
We work with businesses that have a purpose and want to be part of their journey. That’s why we’ve designed our audit services to be about more than just ticking boxes; with our audit reports and advice you’ll know exactly what to do next. Our audit reports will give you key recommendations for managerial changes and improvements.
We also specialise in accounting and audits for charities and have the skills and expertise that can make the difference between an acceptable audit and an illuminating one so your organisation can continue to do the most good for people. Our external auditors will give an objective opinion on your financial records so you can make better financial decisions.
Get in touch with us to find out more about our specialist audit services.
