Company audits are typically associated with two things – large businesses and regulatory compliance.
Annual financial audits carried out by external third-party auditors are mandatory for public companies, banking and insurance firms, and private limited companies with an annual turnover above £15 million, a balance sheet total over £7.5 million, or 50 or more employees.
But there is more to an external audit than merely being a statutory tick-box exercise. There’s even plenty to recommend smaller companies that aren’t obliged to undertake an audit by law going through the process voluntarily.
Carried out by expert auditors to the highest professional standards, an external audit can add value to your business. Here are five benefits to consider.
1. Improving Processes and Mitigating Risks
Audits are about much more than verifying the numbers in your accounts. Professional auditors dig deeply into internal controls, risk management processes and other operational systems and protocols which impact financial management. In doing so, they shine a light on inefficiencies and weaknesses – outdated processes, duplication, insufficient segregation of duties – and give companies the intelligence they need to make improvements. In particular, external audits provide vital insight into risk mitigation and governance, exposing vulnerabilities that could lead to unwanted costs, compliance issues or worse.
2. Supporting Strategic Decision-Making
The better you understand your business, the sounder the foundation you have for decision-making. As noted above, the in-depth intelligence you gain from an audit helps to identify and resolve weaknesses, and mitigate risks. It’s also invaluable for informing future planning and identifying opportunities for taking your business forward. Whether you look at expansion or restructuring, M&A or diversification, external audits help you understand exactly where your business is so you can make the right decisions at the right time. Moreover, audits routinely compare company data to industry benchmarks and best practices, providing a further competitive edge in planning and forecasting.
3. Enhancing Accountability and Corporate Culture
Any company leadership that commits to external audits sends out a powerful message about transparency and accountability. It shows directors are happy to expose the inner workings of the business to scrutiny, knowing that their decisions will be judged in the context of business intelligence that is freely available. It also empowers all stakeholders in the business, from employees to shareholders to financial backers, to feel they can hold directors to account for their decisions based on independently verified information. That in turn creates a shared sense of ownership and purpose, sets the tone for company culture, and encourages everyone to adhere to the highest standards when it comes to record-keeping and information sharing.
4. Strengthening Financial Credibility
From enhanced accountability and trust stems greater credibility. And when you’re looking for finance, investment or a buyer for your business, credibility is paramount. Lenders, investors and would-be buyers will all want to carry out due diligence on your accounts, and their decision will at least in part rest on how much they trust your financial position. An external audit provides independent verification and assurance.
5. Adding Value During Business Transitions
Following on from above, in the case of M&A activity or succession planning, the credibility you gain from an external audit can also increase the price you can command for your business. If buyers and investors trust that your business is in a strong financial position, they are more likely to look favourably on your terms. And if it comes to a bidding war between rival parties, that trust in your financial position might even see you get more than you bargained for.
To find out more about how audits work and what they can do for your business, get in touch to speak to an audit and assurance specialist in your area.
