Your business may be obliged to present audited financial accounts to external stakeholders. These can include Licensing Authorities or other external stakeholders. If you are new to the procedure, it can initially seem daunting.
To help you get a better understanding of how audits work, how they benefit your business, and why they are important, we have prepared a helpful guide that gives you all the information you need.
In short, audits are conducted to show stakeholders that financial statements are reliably prepared and attested to the appropriate IFRS standards.
Audits are typically conducted by independent and accredited auditors to assure stakeholders that financial statements accurately represent a true reflection of the company’s financial position.
There are numerous types of audits including tax audits, investigative audits, operational audits, and financial audits. Financial audits are the most common.
Why do you need an audit?
Audits are often required to meet certain financial reporting requirements from stakeholders and some government bodies.
Audits help to show the credibility and reliability of the financial performance of the company. They can also help to detect fraud, inconsistencies, recommend improvements to systems and operational efficiency. Also, management can use the attested report to better budget and plan for the next financial year.
Who May Require Audited Financial Statements?
- Government Authorities – Under increased compliance for ESR, attested financial statements are recommended if your business is a Relevant Entity. They may also be requested by your Licensing Authority to renew your Trade License.
- Banks – Securing or maintaining bank loan facilities. Banks will require audited statements to verify the creditworthiness under a loan application and ensure the business can maintain regular debt repayments.
- Investors – Investors will often require audits to undertake any due diligence. The reliability of the accounts demonstrating financial performance will increase confidence for an investor before any capital investment.
- Management – External audits provide an expert assessment of the accuracy of internally prepared financial reporting. Ideally, they will also highlight deficiencies or risks in processes and controls.
Planning Your Audit
Planning an audit does not have to be stressful. Preparation is key to minimizing delays and qualifications to the final report. The auditor will seek to follow the high-level process:
- Appointment – The auditor will need to be formally appointed and documentation signed to allow the auditor to request information on your behalf to other entities (such as banks)
- Compliance – The business license, legal incorporation, shareholding, structure, and other documents will be requested to verify the authenticity of the entity under audit.
- Financial Statements – Internally prepared financial statements will need to be provided for the financial year under audit.
- Transactional checks – Several audit tests will be conducted. The auditor will request documentation and evidence to verify the legitimacy of sample transactions under review.
Trying to rush audits or not providing the necessary documentation can lead to qualification by the auditor. This can end up damaging your reputation. It is always advisable to work with experienced firms to ensure that your audit is reliable, credible, and acceptable to external stakeholders.
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