As an audit specialist, I’ve noticed that many clients harbour misconceptions about the nature and purpose of statutory audits.
At their foundation, statutory audits are independent examinations of a company’s financial statements, as required by law.
The primary aim of these audits is to deliver an unbiased evaluation of a business’s financial records and practices.
This ensures that the financial statements accurately reflect the ‘true and fair’ financial position of the company.
However, it’s important to understand that this process transcends mere compliance and can also uncover valuable insights into the financial well-being of your business.
In my interactions with clients, I often encounter a range of questions and concerns regarding statutory audits.
Through this article, I intend to address these queries, helping you to appreciate the benefits and importance of a statutory audit.
By demystifying the process, I hope to transform perceptions of statutory audits from being seen as a statutory obligation to being recognised as an essential tool for financial transparency and business growth.
Misconception one: Statutory audits are only for large corporations
In my experience, one of the most common misconceptions is that statutory audits are exclusively for large corporations.
However, they apply to a wide range of businesses, including small and medium-sized enterprises (SMEs).
The requirement for an audit depends on certain criteria like annual turnover, employee count, and total asset value, which can also encompass smaller businesses depending on the nature of their operations.
Misconception two: Audits are intrusive and disruptive
Business owners often worry that statutory audits will be intrusive and disrupt their daily operations.
However, experienced auditors work efficiently and collaboratively, aiming to minimise any impact on the day-to-day running of the business.
With proper planning and communication, an audit can be conducted smoothly and even provide valuable insights for business improvement.
Misconception three: The only purpose of an audit is to uncover fraud
While detecting fraud is a component of statutory audits, it is by no means the primary focus.
The main objective is to verify the accuracy and completeness of financial records and ensure they comply with accounting standards and legal requirements.
Auditors assess financial statements to give stakeholders confidence in the company’s financial integrity.
As part of this, auditors will access financial processes for fraud and risk to highlight any potential weaknesses that need to be addressed.
Misconception four: Audits always result in negative findings
The notion that audits always uncover major problems is a myth. Many audits conclude with positive outcomes, where the financial statements are given a clean bill of health.
In fact, audits are often used by companies to provide financial surety ahead of future investment rounds, sales or mergers.
Even when issues are identified, they allow businesses to improve their financial reporting and internal controls.
Misconception five: Statutory audits are Just a ‘tick-box’ exercise
Far from being a mere formality, statutory audits provide critical assurance about the accuracy of a company’s financial reporting.
They offer an independent perspective that can help management identify areas for improvement and enhance business performance.
Misconception six: The auditor’s role is to advise on business decisions
The role of an auditor is to examine and report on the financial statements objectively.
While auditors may provide insights into financial reporting and controls, their primary responsibility is not to advise on business strategy or management decisions.
The Moore Thompson view
Understanding the realities of statutory audits can alleviate concerns for small business owners and I see this job as being a central part of my role as an audit specialist.
The audit process, when conducted effectively, offers valuable insights and assurance rather than an intrusive and disruptive distraction from your daily work.
Crucially, involving a qualified accountant in the audit process can be immensely beneficial.
Accountants provide expertise in preparing for the audit, ensuring that financial records are accurate and complete.
Their involvement can make the audit process more efficient and less stressful, and can help in translating the findings into actionable business strategies.
In essence, an accountant plays an indispensable role in navigating the complexities of statutory audits, turning what might seem like a daunting obligation into an opportunity for business growth and improvement.
If you’d like to discuss statutory audits with an expert, please email me at: emmawilson@mooret.co.uk or get in touch with the Moore Thompson Audit Team.