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