What is a Financial Audit? Does my business need one?

statutory financial audit . why and when are they required?

A financial audit is an annual, independent inspection of a company’s accounts, required by law unless you qualify for audit exemption, which is most commonly applied when the company falls below the audit thresholds. If your organisation is part of a larger group which passes these thresholds, you will also be legally required to be audited.

An audit is to ensure the organisation’s accounts have been prepared correctly, accurately and in line with relevant standards.

The current legal audit thresholds (September 2021) are as follows, and the requirement will be triggered once you cross any two of the three:

• Greater than £10.2 million in turnover
• £5.1 million or over in total assets
• More than 50 employees

An audit must be carried out by an independent party, who must be a registered auditor and will often also be a specialist within a chartered accountancy firm. They have a responsibility to conduct the process in line with compliance standards as set out by law.

You’ll usually be required to assign an appropriate manager or employee to assist the auditor by providing any information they need to carry out their work, so it’s a good idea to identify the best person for the job before you get started.

What’s involved in the financial audit process?

Several factors are covered, which include:

• Review and inspection of your financial statements
• Identification of material misstatements through sample testing of transactions/balances
• Confirmation that disclosures meet accounting and other relevant business standards
• Any identified issues reported to and discussed with directors/managers
• Audit report compiled for inclusion with financial statement submissions

What are the additional benefits?

Aside from your legal obligations to demonstrate that everything is above board with your accounts, an audit is also a powerful internal tool, providing benefits to your business such as:

• Identification of systematic, procedural or software errors
• Identifies areas for efficiency and internal control improvements
• Demonstrates integrity to shareholders, investors and other stakeholders

If you require help with your business audits or wish to discuss other related services, such as assurance reviews, our team of chartered accountants and registered auditors are here to help. Please contact us.