Financial audits are often represented as a thorn in a business’ side – an arcane and bureaucratic practice designed to slip you up, starve your progress and potentially incriminate you. This could not be further from the truth; financial audits are a necessary, normal and even beneficial part of your growth as a business – and not just the haunt of HMRC tax inspectors. Here we’ll discuss the reasons you may want to audit your business, as well as some tips and tricks to a smooth and successful auditing process.
Why You Might Need an Audit
Despite the prevalent image of an audit as a governmental exercise to check for tax compliance, financial audits are actually a far simpler affair. In essence, a financial audit is an objective evaluation of your business’ present financial standing. This information is invaluable to a growing company, as the insights stemming from independent evaluation can show you potential weaknesses in your model – giving you the tools to grow your business in an informed manner.
The reason audits are synonymous with HMRC is that many businesses do not audit themselves annually – a legal requirement for larger businesses – and tax audits are their only introduction to the practice. But given the benefits of knowing your finances in and out, you might want to consider the process for your business.
Preparing for Audit
The most important consideration to make is that your audit needs to be objective; that is, you need a trusted independent evaluator to conduct your financial audit on your behalf. It is highly unlikely that any member of your team is intentionally committing fraudulent behaviour, but using an external evaluator allows you to circumvent your employees’ practices – and any potential issues they might include – to gain a full understanding of your company’s standing.
You should also be sure to understand exactly what kind of data your auditors expect from you, and to pass that knowledge onto your financial team. Do not be afraid to ask further questions of your auditor, so as not to neglect any potentially important documentation. It might help to task an employee with reviewing and correcting any data requested by your auditor before the date of your audit.
What You Need to Know
As of 2013, the Financial Reporting Council updated accounting standards, via replacing the previous aggregate of guidance with a single standard – the FRS (or Financial Reporting Standard) 102. Any systems you put into place to gather accurate financial data for your business’ audit need to comply with FRS 102 standards.
Auditing is by-and-large a one-way process, but remember that you know more about your business than any independent auditor. Be sure to review any auditor’s initial plan, and to pinpoint areas that are not applicable to your company.