Does your business need to complete a company audit? As a legal requirement, it’s important that you know whether or not your company meets the criteria. In addition to it being a legal requirement, an audit can deter fraud and also add value to your company by adding trust in an organisation and giving people more confidence in financial statements.
Does Your Company Need an Audit?
In most cases, a company will need to be audited unless they meet a specific criteria:
- It does not meet the financial thresholds set out, or
- It is exempt from those requirements by being subject to a public sector audit as a non profit organisation.
A company must be deemed as small in order to be exempt from an audit, or else have qualified as a small company in the previous year to gain a year’s grace.
A company must meet two of the following financial criteria for it to qualify as small:
- There must be fewer than 50 employees
- Gross assets must be less than £5.1 million
- Turnover must not exceed £10.2 million
- When assessing the criteria of a company that is part of a wider worldwide group, all of the companies within the group must be included
- A company must also not be ineligible for any part of the year (any listed under CA 2006 s384)
- A company must also not be part of a group that doesn’t qualify due to it including ineligible companies under CA 2006 s384.
Something to be aware of is that, even if a company fits into two of the above criteria and is deemed ineligible for an audit, one may still be required if the company’s members (with 10% of a class of shares) request one.
How Do Auditors Reach Their Opinion
The first thing that auditors will do to assess your audit status is to obtain audit evidence that will offer them reasonable assurance that all financial statements are free from material misstatement. Following this step, the financial statements will be checked to see that they are in accordance with accounting standards, as well as all of the relevant legislation. The final step that auditors must assess is that the business in question is a going concern.
What May an Auditor Request?
Auditors can request to see a company’s accounts, books and vouchers at any time. They may need an officer, or an employee at the company who is responsible for the books, to give them additional information that they deem necessary in order to complete their duties.
Something to bear in mind is that an auditor will never relieve a director – their responsibilities will still stand and they will be responsible for preparing and then presenting the financial statements. Preventing fraud or an error from taking place is not the function of an auditor, this will still lie with the directors.
How Best to Prepare for an Audit
All companies will want to ensure that their audit is carried out as efficiently as possible. To help with this, try to make sure that all members of staff will be on hand during the audit to avoid any delays. It’s beneficial to plan a timetable for the weeks prior as well as during the audit so that you’ve organised time for preparation to take place, as well as organised agendas during the audit as well.
It’s important that the information requested is given as soon as possible and that it is the final version, so get sign-off by the board before passing across any figures. This will make the process a lot smoother because if there are any changes that need to take place, then this can mean a lot of additional work to update any audit files that have been recorded. Make sure the information passed across is not only accurate but clearly labelled and organised using the references you are provided with at the start of the audit request.