Running a small business involves more than just coming up with ideas and raking in money. It also means getting a handle on the numbers and making wise financial decisions. However, handling finances on your own can sometimes lead to penalties. In such cases, seeking the assistance of auditors and accountants for more complex financial matters can be a smarter choice.
Audited financial statements hold a higher level of credibility with investors and lenders. Some companies are legally obligated to audit their accounts, while others choose to do so voluntarily to enhance data credibility and reliability. There are various types of audits, including external, internal, tax, forensic, compliance, and value-for-money audits.
Today, you will learn why small businesses benefit from auditors and the advantages of auditing. Keep reading to find out more!
Who Is An Auditor?
An auditor is basically someone a company hires to take a close, independent look at its financial statements and accounting records. After this careful examination, the auditor creates a report that evaluates the reliability and accuracy of these financial statements, following the laws and regulations in place.
The auditor’s report tells you whether the company’s financial accounts present a truthful and fair picture. The auditor also verifies if the information in the director’s report aligns with the annual accounts. If, in the auditor’s view, the director’s report or accounts don’t follow the rules outlined in the Companies Act, the auditor will mention this in the report.
Why Small Businesses Need An Auditor?
Small businesses often wonder if they really need to hire an auditor, and the answer isn’t one-size-fits-all. It depends on various factors, including your business type and size. Here’s a breakdown to help you understand when an audit is necessary.
Mandatory Audits
Not all small businesses must undergo an audit. There are exceptions, and some tiny companies can skip this process. Dormant companies and micro/small businesses often fall into this category and can avoid audits. However, certain types of businesses are legally required to have an audit, including:
Public Company:
An audit is mandatory if your company’s shares are publicly traded.
Insurance Company:
An audit is a must, whether you’re involved in insurance or insurance market activities.
Banking Company:
Banking companies also have to go through the audit process.
E-money Issuer:
Businesses involved in electronic money must have audits.
MiFID Investment Firm:
If your company is under the Markets in Financial Instruments Directive (MiFID), an audit is required.
UCITS Management Company:
Companies in this category need audits.
Regulated Market Trading:
An audit is obligatory if your company’s shares are traded on a regulated market.
Pensions Scheme Funding:
Companies funding a master trust pensions scheme require audits.
Special Register Body:
Audits are necessary if your business is a special register body.
Pensions or Labor Relations Body:
Companies falling into this category must undergo audits.
Benefits Of Having An Audit:
Here are some benefits of auditing for your small business:
Compliance:
Auditing your accounts becomes a legal requirement when your business reaches specific criteria. It’s a crucial step in ensuring you adhere to the law.
Improves Control Environment:
Auditors assess your internal financial control systems. This process helps identify areas where your internal controls can be enhanced, leading to a more effective and secure financial environment.
Identification Of Fraud:
During an audit, auditors might uncover potential fraudulent activities. While they can spot irregularities, it’s important to note that their primary role isn’t to prevent or detect fraud; that responsibility lies with the company.
Help In Optimizing Business Processes:
Auditors can help streamline your business processes by identifying areas where you can cut down on unnecessary steps. This not only minimizes the chances of errors but also boosts productivity.
Ensure The Accuracy Of Financial Statements:
An audit serves as a seal of accuracy for your financial statements. By conducting an audit, you assure investors and stakeholders that your financial records are reliable and transparent. This boosts their confidence in your business and increases the likelihood of investment growth and returns.
Final Thoughts:
An auditor plays a vital role in businesses, offering an independent review of financial statements, ensuring legal compliance, and promoting transparency. Small businesses should consider their specific circumstances regarding mandatory audits, as not all are required.
Certain businesses like public companies, insurers, and banks are obligated to audit. Speaking of auditors, you can get help from BSA, as we are the best accounting and auditing firm in Dubai.
