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Most companies may already be familiar with auditing because it is required by law for them to undertake one. Smaller businesses may be wary of these tasks when really, auditing is merely a way in which businesses – or even individuals – are evaluated financially. More often than not they can give great insight into how everything is running, and offer suggestions for future success. But, some people choose to ignore this accounting essential. Here are 5 reasons any business can benefit from auditing:
1. Sometimes you have to.
For larger companies, it may be a legal requirement to carry out an external audit. These will mostly be for the purpose of shareholders or bankers who have an entrusted interest in the success and growth of the company. In the UK, the law currently states that groups who turnover less than £3.9 million (gross) will be exempt from these compulsory audits. However, many may still choose to conduct one regardless. In fact, those who are exempt often choose to have an independent assurance report as an alternative, which costs less money than an external audit whilst giving a similar overview.
2. It’s the accounting equivalent of a Spring Clean. Smaller businesses may not be required to publicize their finances, but if they’re doing particularly well, they may choose to. An independent audit can give these numbers authenticity and authority. Choosing an audit when not legally bound to do so is a personal choice for businesses and can really help to ensure that all relevant documentation is in place. Opting to do this on a regular basis – usually annually – can help increase efficiency and is a great motivation to become more organized as a company.
3. Prevent fraud in larger companies.
Within larger organizations, it’s not always easy for management to oversee everything. Not only is a more efficient company more profitable, thanks to an audit, but the system can help to identify if there is any fraudulent or illegal activity occurring, of which superiors aren’t aware.
4. Produce accurate profit figures and estimations for next year.
As audits can help to evaluate your company, this really is the number one reason to voluntary conduct one. They give you a more accurate figure for your profits. When we are living in an uncertain economy, this can be hugely beneficial in determining where money is being lost, meaning it is a worthwhile task, regardless of legal obligation.
5. Helps to analyze management structure.
Apart from identifying holes in finances, an audit can also give an accurate overview of a company’s management system. Identifying where improvements could be made in terms of a company’s structure helps to grow a business, and this opportunity for staff to suggest effective solutions can ensure that a business becomes sustainable for the long run.
Guest post written by Karen Asbury from chartered accountants Eacotts