Not all companies in the UK are legally required to undergo an audit. Usually, a business must have a certain annual turnover before a statutory audit is carried out.
Smaller businesses tend to fall outside the scope of the audit criteria, but that doesn’t mean they’re unavoidable.
No matter the size of your business, it’s important to understand when you may need an audit and what to expect.
Why might my small business need an audit?
As mentioned, small businesses usually fall outside the scope of mandatory audits. To be considered a small business, you must meet two of the three following criteria:
- an annual turnover of less than £10.2 million
- gross assets less than £5.1 million
- fewer than 50 employees.
However, even if you meet two of these criteria, shareholders with 10% or more of the company’s shares can formally request an audit. The request must arrive at the company’s registered office at least one month before the end of the financial period in question.
Some small businesses undergo a voluntary audit. This could be to help reassure investors and shareholders that their money is in safe hands. Or they can be a useful tool to help improve your internal working processes.
What will happen during my audit?
During your audit, a team of independent auditors will examine your financial processes, looking for material errors or shortcomings. This will include your financial statements, your books and your expenses.
Once the checks are complete, the auditor will draft a report of their findings. You’ll have the opportunity to respond to any comments in the audit before the finalised document is complete. Usually the auditor will issue a positive audit report confirming that, in their opinion, the financial statements are free from material misstatement.
If your auditor has any suggestions for improvement, you’ll be able to address these as soon as possible, helping your business become more efficient and compliant.
What are the benefits of an audit?
Although the idea of an audit can be quite daunting, there are several benefits of having one.
Firstly, an audit can help highlight areas of your business that may need refining. If the process highlights poor bookkeeping habits, your auditor will flag this, allowing you to focus on refining your practices.
Audits can also help you minimise the risk of fraud. If your auditor highlights inconsistencies you were previously unaware of, you’ll have the opportunity to take action as soon as possible.
Suppose you’re planning on selling your business in the near future or even further down the line. In that case, an audit will prove to any prospective buyer that your business is a sound investment and has operated responsibly.
We’re here to help
Although you may not be required to have an audit by law, it’s always best to prepare in case your circumstances change. Our auditing services help businesses like yours find ways to improve their efficiency and stay compliant.
Get in touch to discuss how an audit could benefit your small business.