As a global, world-leading business city, London is known as the financial capital of Europe. While experts have predicted that London will maintain this status post-Brexit, it is vital that businesses in the capital are prepared for any negative impacts they may face when the UK leaves the EU in 2019. One way to do so is via a company audit.
Auditing refers to the examination of a company’s financial accounts, including bookkeeping, statements and records. Essentially, an audit is a safeguarding process which aims to highlight procedural errors and find solutions.
However, there are two types of audit: internal and external. Both perform different functions and are each beneficial to businesses. But what does they entail? What are the benefits? And how often should they be carried out? Read on to find out.
An internal audit is typically carried out by company employees with the aim of assessing business risks. Internal auditors will produce reports about their findings and any recommendations, which are then discussed by higher management and committee.
An external audit, on the other hand, is carried out by a third-party firm such as RSM, by a team of experts who will assess if annual accounts accurately represent a company’s financial history and position. While internal auditors report to company management, an external team will typically report to shareholders. This report will then be made available to the public.
Benefits of Audits
Both internal and external audits evaluate financial records to ensure accuracy, and while different in their approaches, some of their benefits include:
- Identifying risks and weaknesses, providing the opportunity to make improvements and strengthen company processes
- Helping a business to secure funds by improving a company’s reputation and thus, making the business more attractive to potential investors and lenders
- Identifying any irregularities and investigating possible instances of fraud
- Providing an opportunity to ensure employees are aware of and following company procedures
- Delivering new objectives and development opportunities, leading to beneficial changes within the company
Regularity of Audits
Internal audits are not compulsory. However, they can be highly beneficial and as such, it is a good idea for businesses to regularly implement internal audits, on a yearly basis for example. This can help to improve business processes and ensure objectives and growth targets are met.
With regards to external audits, this varies depending on the type of company and industry. For example, limited companies may be exempt from audits based on annual turnover, assets and number of employees. However, when it comes to investors and lenders, they may request that external audit reports be completed.
Auditing is often regarded as a time-consuming and unnecessary process, and while the former may be true, it can provide real business benefits, identifying any weaknesses and thus enabling businesses to reduce risk. It can also increase a company’s level of trust, pleasing shareholders and helping to attract clients and investors. With London being such a highly competitive business market, anything a business can do to bolster their reputation is worth the investment. As such, it is advisable to carry out regular internal and external audits.