Why Businesses Regularly Get Audited
Audits have become a necessity for companies of a certain size (usually listed and limited liability), and for good reason. They are usually conducted once per year when a company releases its annual report, which contains numerous details on its financial operations. The audit is always conducted by an external company like RSM, which will rigorously go through the company’s statements and records of activities over the year leading up to the report. Here are the main reasons businesses get audited.
It is a Requirement
All auditors must adhere to strict government guidelines in terms of how they audit the company and what information they must retrieve. As previously mentioned, companies which have a high enough turnover must have an external audit conducted at least once a year.
Whilst an audit will not check every single figure on any given balance sheet, it will create an accurate picture of the company’s financial dealings overall, and highlight any areas where the company may have been irresponsible or conducted insufficient accounting. So, for many companies, having an audit conducted is a necessity in order to stay within the law.
Ensures Fiscal Responsibility
Not only do audits make a company’s financial dealings more transparent, but they also act as a deterrent against malpractice and deliberate altering of accounting records. Knowing that an independent firm, which abiding by strict government guidelines, is going to meticulously go through financial records should be reason enough for companies to be equally as meticulous in ensuring good practice and legality in their operations.
If malpractice is discovered within the company, then it can significantly harm the company’s reputation, as well as the reputation (and finances) of its shareholders.
Independent/External
Perhaps the most important element of an audit is that it is conducted by a body which is entirely external and independent from the company itself. This stops the company getting tunnel vision in terms of its financial operations, and acts as a type of ‘health check’ for the company.
Since the majority of companies which will receive compulsory audits are likely to be fairly successful given their size and turnover, it makes sense that they should be as transparent as possible as to how they made their profits and how responsible they are with regards to their practices, something which only a truly independent body can verify.
Helps them Improve
Aside from being a necessary moral and legal requirement, a decent audit can also help a company improve on its practices and accounting, as the auditor’s report should highlight any areas in which the company could introduce better financial controls or improve on its general financial dealings.
It also helps the shareholders of the company to verify that the company is achieving its goals in a responsible and safe manner.
So, audits are now considered to be the best way of regulating companies and making sure that their records and financial recording processes are accurate. Companies which undergo audits are far less likely to run into financial disasters/scandals, so using a reputable, professional auditor can really pay dividends in the long run.
