How to prepare for a business audit
Bryn Luffman from our Audit Team outlines the simple steps you can take to prepare for your business to be audited.
Audits are never going to be the most exciting part of running a company, but they are important in highlighting areas for improvement in your internal systems, as well as reassuring potential investors.
What are the legal requirements for audits?
All companies listed on the London Stock Exchange must, by law, be audited every year. Private companies must also be audited if they meet at least two of the following criteria:
- An annual turnover of more than £10.2 million
- Assets worth more than £5.1 million
- More than 50 employees
Why do other businesses conduct audits?
Even companies that aren't legally required to have an audit may do so for a number of reasons, such as:
- Identifying future cost savings
- Providing credibility to financial statements and confidence to investors or managers
- Reviewing efficiency of operations and internal processes
- Ensuring compliance with regulations
Preparing for a business audit: checklist
Establish the reason for the audit
Whether it's creating reassurance for shareholders, or a request from HMRC, understanding the purpose of the audit is essential. If you are not legally required to conduct an audit and have instead conducted one voluntarily, you should establish the reasons for wanting a specific period of time or area of business to be addressed.
Perform reconciliation throughout the year
Whether it's an in-house finance manager or a qualified accountant, we recommend that your finance professional performs reconciliations every month or every quarter for all balance sheet items. By doing this, not only will it help speed up the audit process, it will allow your company to track all outgoings and incomings throughout your financial year helping you to budget more effectively.
Ask for the requirement list from your auditor early on
Prior to an audit, your auditor will provide you with a 'prepared by client' list, which outlines supporting documents, such as forecasts and inventory and sales records, which you need to supply. The list of requirements is often extensive, so if you can foresee an audit, it may be worth asking for this list early on.
Plan for minimal business interruption
The last thing you want is for your audit to hold back your business performance. By understanding the requirements early on, you can plan your resources carefully. This could involve ensuring that your finance managers aren't on holiday during important parts of the process, or even creating a strict list of tasks and deadlines that still take into account the regular day-to-day tasks of your business.
Make a switch to digital software
By making use of cloud accounting software such as QuickBooks or Xero, you can scan in receipts, invoices or financial reports in order to securely save this information as you receive it and minimise the risk of losing paperwork. Also, most of these apps can automate the categorisation of documents, making it easier for your in-house team and speeding up the audit process.
How do I choose the right auditor?
A high-quality auditor should be good at communicating with clients, asking open-ended questions that really delve deep into your business. Your auditor should spend most of their time listening to you and your company, as collecting the right information is arguably the most important part of the process. This will then help the auditor to identify potential areas for improvement within your business. With the rules changing frequently, auditors also need to be experts in the law surrounding your company and they should provide you with factual information on legislation and regulations you need to consider.
If you require advice on preparing for an audit, understanding more about the auditing process or creating a plan to allow a smooth auditing process, please contact us on 0115 955 5500 or email enquiries@pagekirk.co.uk.