A New Business Owner’s Guide to the First Company Audit
Audits are important to stay compliant with the law, so you can focus your energy on your core business. Read on to determine whether you need a company audit, and how you can go about doing so.
If you are a new entrepreneur or a small business owner and still navigating the business landscape, you may wonder if you are required to do a company audit. Audits are important to stay compliant with the law, so you can focus your energy on your core business. Read on to determine whether you need a company audit, and how you can go about doing so.
By the way, if you need to outsource your bookkeeping tasks to a trusted service in the UK, we can help you with that, you don’t have to do everything alone even though you can.
What Is an Audit of a Company?
A company audit is the process of examining your company’s financial records to ensure they are free of material misstatement. This is carried out via a systematic review of your past transactions. During the audit of a company, the auditors will do the following:
- Perform procedures to gather audit evidence to furnish them with assurance that the financial statements are accurate
- Verify that the financial statements have been prepared according to legislation and standards from regulatory bodies such Companies House and HM Revenue & Customs (HMRC).
Does My Company Require an Audit?
The good news is that most private limited companies in the United Kingdom can benefit from small company audit exemptions and thus, are not required to go through an annual company audit.
However, to be eligible for the audit exemptions, you company will have to meet at least two of following conditions:
- Annual turnover of no more than £10.2 million
- Assets worth no more than £5.1 million; and
- Have 50 or fewer employees on average
- If the company is a part of a bigger group, the entire group as a whole must fulfill the above conditions
If you are not eligible for an exemption, your company’s annual accounts for a financial year will have to be audited.
Additionally, even if your business is exempted from an audit, shareholders with 10% off a class of shares still have the right to request for an audit.
What Are the Responsibilities of an Auditor?
The auditors should be given access at all times to your business's books, financial statements and accounts.
Auditors are required to produce quality work in accordance to the United Kingdom's legislation and standards, including the following:
- Document findings and audit tests and complete audit workpapers
- Finish audit questionnaires and appraise company's adequacy of internal control systems
- Verify company’s liabilities and assets by comparing documentation to items
- Ensure company's compliance with internal control processes through examining reports, records, documentation and operating practices
- Prepare control and audit reports through analysing, collecting, summarising operating trends and information
What Is My Responsibility as a Company Director?
While the auditors have heavy responsibilities, it is not their function to prevent error or fraud - that responsibility lies with you or your directors. The audit does not exempt you or your directors from any responsibilities as you or your directors are still accountable for the preparation and presentation of your financial statements.
Additionally, you may need an employee in charge of the business's books, or to furnish necessary information or explanations required for the auditors to perform their duties. If you need help with this, we can help.
How Do I Start Planning My First Audit?
To make sure that your company audit process runs efficiently, here's what you can do.
Step 1: Discuss your need for assistance with your auditor
Together with your auditor, determine a high priority for agreed-upon tasks, while making sure that the auditor has a fair turnaround time to work with.
Step 2: Discuss with your stakeholders
Express your needs, and discuss with your stakeholders on the audit procedures that are required.
Step 3: Determine your contact person
Establish a point of contact for particular areas under audit and keep away from any potential scheduling clashes, including holidays, vacations, work schedules, scheduled medical procedures, and out-of-town needs.
Step 4: Establish an ‘auditor’ file
Set up an ‘auditor’ file for the purpose of regulatory agency correspondence, as well as copies of new or edited documents regarding fixed asset additions and disposals, leasing arrangements, debt agreements, lawsuits, technology modifications, complex transactions and major customers and vendors.
Step 5: Reconcile information
Reconcile information to general ledger account totals. For instance, reconcile all bank accounts, accounts payable, accounts receivable and equipment lists. You may request for templates, clarification or copies of prior working papers to help you prepare documents in a format acceptable to the auditor.
Prepare your main documents beforehand. If the information is readily available, you can minimise the disruption to your employees during the audit:
- Primary accounting records
- Representation of structure and ownership of the company/ group of companies
- All year-end bank statements and reconciliation available for the entire period, applicable for all bank accounts
- Aged creditors’ and debtors’ listing
- Balance sheet breakdown with invoices to evidence items including prepayments, accruals and fixed asset additions
- Wages records and P11D returns
- All hire purchase and leasing agreements
- Stock reports
- VAT returns and workings
- Copies of all meeting minutes held during the assessed year
- Information of any changes in share ownership
Step 6: Set deadlines
Put deadlines in place to talk through significant estimates employed in financial statements, including allowance for warranty reserves, uncollectible accounts, and percentage of completion.
Focus on your Business and Leave the Rest to Us
Free yourself from the admin work and let us handle your company's accounting, taxes and reports. We take over paperwork, cross-check data, and submit your annual reports neatly. You will also have advice from experienced Chartered Accountants to help pay tax efficiently.