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News - 20 March 2012

Audits how and when?

We asked our Audit Director, Peter Ham, to talk us through the Audit process, especially for smaller companies.

The way audits are conducted by firms of professional auditors has become more regulated over the years, with the overarching objective of this regulation being to ensure that audits are conducted, not only to the highest standards befitting a professional firm, but also in accordance with strict ethical guidelines

The Ethical Standards (ESs) issued by the Auditing Practices Board (APB) are compulsory for firms that undertake audit work for their clients. Specifically, the ESs outline matters such as:

  • How audit firms set policies and procedures to ensure that all those in the firm that carry out audit work do so with integrity, objectivity and independence
  • Financial, business, employment and personal relationships
  • Long association with the audit client
  • Fees, remuneration and evaluation policies, litigation, gifts and hospitality
  • Non-audit services provided to the audit client
  • Every UK business is required to complete accounts on an annual basis. These accounts are then used to calculate the amount of tax payable, based on profits and other forms of income.

These accounts are also important from an individual’s perspective. Not only do they provide you with information about the profitability and stability of your business, they can also help when requesting finance, both personally and for the business.

To prepare accounts, it is important that you have adequate, accurate and complete records detailing the transactions your business makes.

Taxation authorities have certain powers to ensure that tax is collected correctly. Without proper records there may be additional tax to pay.

Companies Act may require your company to undergo an independent audit on its accounts, because your turnover, assets or number of employees are above certain thresholds. The current legal requirement with regard to a limited liability company is that if it’s annual turnover is greater than £6.5million or 10% or more of the shareholders request it, then the annual company accounts must be statutorily audited by a firm of Registered Auditors. These requirements do not override the situation that the company may still request a statutory audit for internal reasons.

Charities and Pension Schemes are governed by rules, which determine when a statutory audit is required. Various Clubs and Institutions may also stipulate in their rules and regulations that a statutory audit is required on their annual accounts.

In the past, audits were seen as the 'cost' companies had to pay for the privilege of limited liability. Audits provide reassurance to shareholders, lenders and creditors that the annual accounts are reliable. Companies House confirms that 93% of the complaints it receives are about the credibility of filed accounts from audit-exempt companies.

However, small companies still have to produce full statutory accounts, so there remains scope for cutting more 'red tape'.

Not all companies with turnover under £6.5 million come within the audit exemption provisions, because there are criteria other than turnover. In particular, companies not classed as small or whose total assets exceed £3.26 million must have an audit. Public companies and those carrying on particular types of business, such as insurance broking and financial services are also subject to an audit. Shareholders can require that an audit is carried out, for example if they are not involved in the day-to-day running of the business and require reassurance that their investment is being properly looked after.

However, even if you are under the audit threshold, an audit can supply you with the assurance to show the bank managers that your company is well run and profitable. We at ABDS are focused on delivering a quality and cost effective audit that goes beyond the compliance with a regulatory function. We will also make recommendations to you based on our audit findings, to help you improve your internal financial and control systems and to help you improve the performance of your business.

 
If you need any help and advice on Audits and Business Plans, contact Peter Ham, Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net
 

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