A financial audit is a detailed examination of the financial records of an organisation. It involves assessing the accuracy, completeness, and reliability of those records. The objective of an audit is to provide independent assurance that the financial statements present a true and fair view of the entity’s financial position. Audits also help identify any areas where the accounting system or internal controls could be improved.
What are the standards of a Financial Audit?
In a financial audit, an independent auditor will review the organization’s books and records, review financial statements, discuss with management any risks and issues identified during their assessment, assess the system of internal controls, and test transactions to ensure the accuracy of the information in financial statements. The audit will be conducted in accordance with Generally Accepted Auditing Standards. These standards are set up by the auditing profession and provide a framework for what needs to be accomplished in an audit.
The auditor must have an understanding of the organization’s internal control system, assess whether sufficient evidence has been obtained to form an opinion on the financial
Does my business need an audit?
That depends on what type of organization you are, what the laws and regulations require, what kind of investors or funding sources you have, what your insurance contracts say, what industry standards your business follows, and what you need to know about your financial statements.
Small businesses are usually exempt from financial audits, small business criteria are based on either financial criteria (total assets and sales) or organizational structure such as being a sole proprietorship, limited liability company, partnership, or not-for-profit organization.
- If your business's annual turnover is less than £10.2 million,
- Have less than 50 employees and
- Assets worth less than £5.1 million,
Despite the criteria above, according to the 476 Companies Act, if 10% of the shareholders formally request an audit, it has to be done at least 1 month before the end of the financial year they want to be audited.
Your business may not need an audit. However, it is always recommended to speak to an auditor or accountant who can advise on what type of audit your business requires.
What Businesses have to Undergo an Audit?
- If your business has issued securities to the public, is listed on a recognized stock exchange or is regulated by one of the financial industry regulators (such as the Financial Conduct Authority), then it must undergo an audit.
- Businesses that provide financial services, such as accountants and investment advisers, are also required to have an audit. In addition, certain charities and not-for-profit organisations may be required by law or their governing bodies to have an audit.
- Insurance companies are also required to have an audit, as a condition of the insurance policy.
- Charities with annual income over £1 million or with assets worth more than £3.26 million and £250,000 annual income and businesses in the public sector, such as local authorities, must also submit to an audit.
- Finally, any business with over 500 employees working in the UK must be audited.
Ultimately, what type of audit your business needs depends on what your business does and what the legal and regulatory requirements for your industry are.
What are the benefits of a Financial Audit?
Provides Independent & an Objective Review
Financial audits provide an independent, objective review of your business’s financial information. They help to ensure that the information presented is reliable, accurate, and complete.
Helps Balancing Your Finances
An audit can help to protect your business from potential risks, reduce the cost of borrowing money and improve its reputation with existing and potential customers, suppliers, and partners.
Protects You Against Fraud
Audits can help to detect any fraudulent activities or financial misconduct that may have occurred in the company, as well as uncover any potential areas of improvement or cost savings. Moreover, an audit can help to provide assurance that your organisation is complying with applicable laws and regulations.
Helps Identifying Weaknesses in Your Organisation
Finally, an audit can help to identify any weaknesses in internal controls that could lead to errors or fraud.
In conclusion, what type of audit a small business requires depends on what it does and what the legal and regulatory requirements are for that particular industry. An audit provides an independent, objective review of a business’s financial information, helping to protect it from potential risks while uncovering any areas of improvement or cost savings.
It is always recommended to speak to an auditor or accountant.