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Business audits are based on an analysis or evaluation of a company, in order to know the real, current business situation. The auditor is responsible for collecting all types of information to determine an opinion on this and the outcomes can be favourable or unfavourable.
After analysing all the data, the audit report is created, where all the most important data are collected. Large companies must conduct their own internal audits on a regular basis, but even smaller businesses should think about organising these kinds of auditing checks, so as to ensure everything is in order and to be prepared if HMRC ever wished to audit your company.
Audits are an in-depth examination of the company and serve to know the real business situation. In order to know the real situation of a company, different types of audits are carried out and consist of carrying out a thorough evaluation to determine the state of the business.
The decision making process is streamlined thanks to the results provided in the audit report, which are obtained after the analysis. The audits are classified according to the area of study that is carried out – distinguished by accounting, operational or Human Resources audits. The responsible person in charge of auditing the business, highlighting the internal and external audits, is also taken into account.
Audits in companies lend credibility and convey confidence and are an essential element in the business management of large enterprises.
The importance of an audit
On many occasions, companies do not sufficiently value the need and importance of conducting audits in business organisations. This is because auditing allows you to study what you are doing, to know if you are doing things well, if you are complying with legal regulations, if you are adapting to current affairs and new technologies and to direct and make decisions that allow us to have greater success. It is very important for the management of the company, to have reliable information that allows you to analyse and evaluate the steps to follow.
In addition, the control of our business management can help us avoid more than one headache in reference to legal aspects. Sometimes, we can be making mistakes that can be considered as fraud, which can lead to great penalties and fines. For example, if our accounts do not reflect the reality of the company, if our computers do not have the necessary licenses to be used, if our machinery does not comply with the regulations – we may have problems with the law.
What are the objectives of a business audit?
The objectives of an audit focus on knowing in detail all aspects that make up a company process. But, as we indicated above, you can also refer to specific aspects of the company to see how they are developing. The importance of the business audit is such that in some cases, it is mandatory.
Thus, the objectives of an audit can make reference among other issues to:
• Identify the current and exact situation of the company in a general way or in a specific aspect
• Grant credibility and confidence to the company in front of possible investors or banking entities
• Discover frauds that the company may be knowingly, or unknowingly committing
• Take note of technical errors that are taking place
• Review the legality of all products and activities of the company
• Check if the work system of the company is being effective and efficient
• Collect as much information as possible that will allow us to make better decisions that will help improve the performance and productivity of the company
Should I be worried about business auditing?
Auditing takes place as a measure to ascertain how accurate your accounting is, based on the findings of the auditors. If you keep your business accounts up to date and use an accountant like Norden’s, then there should not be anything to worry about. It is about comparing the aspects that make up the company with national or international laws, as well as with the internal rules of the company, to see the deviations that are taking place in them and take measures to correct them.
Therefore, an audit will allow the company to take more control of itself, as well as help detect failures. Also, the audit will allow you to know the real state of the company in general to improve business management.
In short, an audit is an examination and control of the economic situation of the company. It allows knowing what things happen, what things are doing well and what things are being done wrong, how you can improve on any of those key points that are detected and plan a more appropriate strategy and translate it into the financial plan.
Should I set up an audit of my company?
Many companies do not pay attention to, or think about audits. They either think it will never happen to them, or do not give them enough importance as an internal practise. However, we believe that conducting an audit will allow you to analyse and assess the steps to follow in the growth and development of your business activity.
In short, an audit is conducted to test whether a company complies with its obligations, has up-to-date the status of its annual accounts and how the company exploits its full potential in its daily exercise.
How you analyse an audit will allow you to study what is being done in the company, both good and bad. In this way, you can correct or stop what can generate problems in the future.
What company has to go through an audit process?
Small companies, in general, are not required to perform audits. However, it may be necessary to perform an audit when there is evidence of excessive spending, customer complaints, non-compliance of projects, excessive rotation of human resources or when the results are not what were expected.
To qualify as exempt for an audit, a company must be ‘small’, or have been passed as such in the last year and be serving that year’s grace.
In terms of identifying whether a company is financially small or not, two of the following criteria should be achieved:
• Turnover of under £10.2million
• Gross assets under £5.1 million
• Less than 50 employees
• Furthermore, the business mustn’t reach eligibility at any point of the year (PLCs, banking and insurance companies, etc.)
• The business cannot be joined to a group that doesn’t qualify as it includes businesses such as those above
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In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier, the difficult part was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.
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