When looking at when a company needs an audit we must firstly define what an audit is, and what its purpose is. On the surface an audit is a tool to evaluate a business’s financial performance through the assessment and evaluation of data, financial statements, and records. Its aim is to confirm that the financial statements issued by the company in question are correct and free from error. An audit can add credibility to an organization’s financial position as well as give peace of mind to any investors or stakeholders connected to the company.

Do I need an audit?

So the question arises, do I need an audit? Until recently a company had to have an audit if its turnover was more than £6.5M of if its net assets were greater than £3.2M. However the UK Business secretary Vince Cable has changed this criterion stating that “Reporting requirements have become increasingly demanding and costly over the years. We listened to businesses, who made a strong case for reform, and I am delighted that we are now taking this opportunity to make audit more flexible and targeted. Tackling these problems will help save UK companies millions every year and free them up to expand and grow their business, which ultimately benefits the entire British economy. “

Since this statement the Criteria has been altered meaning that in order to require an audit a company must fit 2 out of 3 requirements these are:

  • A turnover of more than £6.5m
  • Assets of more than £3.26m
  • More than 50 employees.

The new requirement is welcome news to many businesses that will save money due to not fitting the new criteria. However it has raised some eyebrows especially with people who have an interest in certain businesses such as stakeholder as an audit help to assure what financial state the company is in.

Another area where an audit can be useful is when selling a business. An audit can give you a somewhat accurate depiction of how a business is performing as well as what its current value might be. From the perspective of the seller it an audit can help to achieve maximum value of their business making it a more enticing prospect.

The Auditing Process

The auditing process can be broken up into four main functions these are planning, fieldwork, audit report and an audit follow up.

  1. Planning – The auditor will accept the client and then set up an initial review of the company’s funds, personnel etc. When this has been completed the auditor will survey the company and gain all relevant information needed.
  2. Fieldwork – The auditor will begin to assess the company and test its transactions and also create an audit summary.
  3. Auditors report – An auditor’s report is a vital tool when reporting financial information to users, especially in business. It is a formal opinion of the company’s financial affairs.
  4. Audit Follow Up – An evaluation of the audit consisting of a follow up review and follow up report.

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