Why are statutory audits important for companies

Why is a Statutory Audit Important for Companies?

While many companies legally require a statutory audit, the audit itself can provide valuable insight into the financial performance of your business. An audit may identify systems and control weaknesses, information which can be helpful when making vital business decisions. Having that external perspective from an auditor can be a real asset to your company. 

What is a statutory audit?

A statutory audit is the examination of the books and records of a company to form an opinion as to whether or not the financial statements prepared from those books and records give a true and fair view of the results of the company for that financial year and of the balance sheet at the year-end date.

In order to reach an audit opinion the auditors will:

  • Carry out procedures to obtain audit evidence to provide them with reasonable assurance that the financial statements are free from misstatement
  • ensure that the financial statements have been prepared in accordance with the relevant legislation and accounting standards
  • and assess whether the business is a going concern

Why is a statutory audit so important for companies?

Compliance is one of the primary reasons for companies undergoing a statutory audit. Understanding changes in regulations can be extremely time-consuming, and with increasing regulations and statutory requirements, poor compliance can result in posing a significant risk to your business. An external auditor may identify areas of weakness and irregularities, offering guidance ahead of potential changes in accounting requirements. Evaluation of internal systems and controls provides auditors with a better understanding of your business’s processes, as a foundation for efficiency and transparency.

One of the other advantages of an audit is ensuring accountability of staff responsible for maintaining the financial integrity within your company. An audit may uncover irregularities and consequently act as a potential deterrent for fraud. Audits are an important form of education for business owners as they can provide vital information on how the financial side of the business is run and what can be improved. Auditors can also provide professional advice on potential accounting issues, ensuring compliance with future requirements.

The credibility of financial statements is also an important aspect of an audit. Auditors independently verify that the financial statements of an organisation show a true and fair view of the state of the company’s affairs at the year-end date and of the results for the year then ended. This provides credibility to clients, shareholders and lenders and potential buyers, although an auditor has a sole responsibility to the shareholders and take no responsibility for any reliance anyone places on accounts.

When is an audit required?

Companies are required to undergo an annual statutory audit unless they qualify for an audit exemption.  Your company may qualify for an audit exemption if it is “small” or was “small” in the previous year.  The financial criteria for assessing if a company is small are that two out of the three following conditions must be met:

  • The business has annual turnover of no more than £10.2m
  • The business has gross assets of no more than £5.1m
  • 50 or fewer employees within the business (on average)

If two out of three of the above criteria are exceeded then the company may not be audit exempt.

What type of companies can benefit from an audit?

Most companies can benefit from an audit. For example, if you’re a growing company that doesn’t exceed the above criteria, you may still see significant gains from an audit. Having a regular audit could attract more investor support, as transparency improves trust in your business. Audits can also help smaller businesses to identify areas of risk, highlight the potential improvement in the company and make the company more attractive to investors and lenders alike.  

In addition, companies that rely heavily on financial and shareholder investment will benefit from ensuring their compliance with an audit, providing an element of confidence in the financial statements being presented.

What are the advantages of having a statutory audit carried out?

There are many advantages to having a statutory audit completed. Here are several key benefits:

  • Credibility — An audit gives the perception of a level of external scrutiny on a company’s statutory accounts that otherwise might not be present. This can give third parties such as customers, suppliers and lenders additional comfort that might not be available from a simple set of unaudited statutory accounts.
  • Compliance — the main reason many companies have an audit is to meet the statutory requirements and regulations. The complete peace of mind that an audit brings is incredibly beneficial to businesses and ensures that they perform their statutory duties and that the directors are not liable for prosecution.
  • Efficient processes —an audit is not just about the numbers. Auditors gain an overall understanding of the business, and may provide management with recommendations for improvements for systems and internal controls.
  • Boost shareholder confidence — an audit offers transparency and reassures investors and shareholders that the company has complied with its statutory requirements in respect of the financial statements.

How Rayner Essex can help

Rayner Essex has a high level of expertise in providing audit services. We have a relationship-driven approach, where you’ll have a senior, fixed point of contact, so you can rely on an auditor who’s truly invested. We work with your company to fully understand your business, systems, processes and controls. We take the time to guide you through the audit process, and can identify areas of weakness making recommendations for improving them. 

We can also provide regulatory reporting, due diligence on acquisitions, and accounting procedures documentation. Companies using our services can also benefit from taxation services both corporate and personal, payroll, accounting and company secretarial services.

Get in touch

If you would like to know more about our audit services or wish to speak to one of our audit experts to discuss your specific requirements in more depth, get in touch with us today.

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