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Kirk Rice Blog

Can Audit Pay For Itself?Written on September 6, 2019 by Kirk Rice LLP

Whilst a lot of company owners might be very glad to avoid having their companies audited, in this article, we explain why it can often work to your benefit to go through the process.

Back in the day, all limited companies needed to be audited. In fact, it was only in 1993 that the UK gave in to an EC directive that brought in an exemption from audit for smaller companies. Now time has moved on, and comparatively, very few companies now need to be audited. Unless your company is a certain size or part of a larger group, there will probably be an exemption in place. See here for more information on audit exemptions.

Most small owner-managed businesses will be exempt, but as companies grow, more staff get added, systems are put in place for people to follow, things become a bit more complicated… the owners can’t be expected to be omnipotent and be absolutely sure that everything is done the way they intended. Similarly, as a business grows, the demands on it change and so an auditor can help in a number of ways.

So, here are our top 6 reasons why, even if you don’t need an audit by law, it might be worth having one done anyway.

1.

  • Are you thinking of selling the company, or bringing in some investment? Audited accounts add substance to the company, particularly in the last few years leading up to a sale. It is important to start the process a few years beforehand to ensure the most recent year and the previous years’ figures are clean – an audit will enhance the credibility and reliability of the figures submitted to prospective purchasers as they undertake their own due diligence.
  • In addition to this, if enough forethought is given to this process, your accountant can help make the company more attractive to buyers as part of the process and let you know what changes should be made, or things that can be done to make the decision to purchase an easier one. Preparing a company for purchase is very important. You wouldn’t expect to get the best price for your car without cleaning it and giving it a good service. The same applies for companies!

For more information on selling your business, you can read our blog or listen to our podcast.

2.

Very simply, the extra scrutiny applied as part of an audit should give you better insight into how your company is performing, with an in-depth review of results and how the company is geared up to deliver future expectations. It is a good opportunity to bounce ideas around and check that your strategies make sense.

For information purposes, there is, of course, no substitute for up to date management accounts but, during the audit, you need to consider the future too, so you can be sure to have a full appraisal – or company health check.

For help with your company accounts please speak our Business Support team.

3.

The requirements of banks, lenders, credit rating agencies, and venture capitalists.

Sometimes an audit is a condition of their lending. Sometimes it makes lending easier to obtain and, it might even make lending less expensive in some cases. Remember, what all these people want is security – that is, that their loans will be safe, that investments are well placed, that the company’s future is secure. An audit report is a big tick in the box for these.

 

4.

To reduce the likelihood of fraud. Whilst an audit can’t guarantee to pick up all errors, it is often seen as a deterrent to fraud, as the staff know that the figures are going to be scrutinised externally.

Over the years, at Kirk Rice, our audit teams have picked up many matters that would have been missed otherwise, including trusted staff who’d been given maybe a little bit too much trust and a director who had been rather sneaky and been a bit eager with the company chequebook.

Fraud used to be a bit of a side issue for audit work, but we’re required to actively consider the risks and likelihood, and design our work to take this into account.

 

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5.

Unsurprisingly, one of the main benefits of audits is the traditional ‘Are the accounts correct?’ assurance. The audit gives assurance to other directors or shareholders, who are a bit more distanced from the day-to-day running of the business that everything is as it should be.

For the majority of clients that choose voluntary audits, it isn’t that they have to prove anything, it’s just the provision of comfort for the other stakeholders – answering a question so that no-one has to ask it, if you like.

 

6.

At Kirk Rice, as operators , we gain a lot of experience of the way different businesses are managed, and our team becomes quite adept at identifying the good systems and the bad systems – and then giving feedback and letting management know at the end of the audit if there is anything that can be improved.

Audits will help to identify any potential weaknesses in the company’s systems and controls, allowing you to address them before they become an issue, and maybe even improve the way the business is run.

In summary, the audit is so often viewed as a grudge purchase or something to be avoided but, at Kirk Rice, we firmly believe that a detailed review of a business can, in some circumstances, reap real dividends in the long run. Please speak to me or any of the other partners and we’ll be delighted to tell you more about how we can help you.

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If you would like to speak to one of our Audit Partners about this topic, please email info@kirkrice.co.uk to arrange a call.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. The FCA does not regulate tax and trust advice.

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