What is an audit?
This a term widely used in a number of different situations where items or processes are checked or verified. Examples include HR audit, Health & Safety audit, Systems audit, Performance audit, Compliance audit and Efficiency audit to name but just a few. This article however is concerned with the Limited Company Audit as defined under UK company law. The Auditing Practices Board (APB) states the following regarding the scope of an audit of financial statements, “An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the [group’s and the parent] company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.”
Who can carry out a UK company audit?
Company audits in the UK are normally carried out by firms of Qualified Accountants such as “Chartered Accountants” or “Chartered Certified Accountants”. However, these qualifications are not enough in their own right. Firstly the person responsible for the audit must hold a specifically defined audit qualification and secondly the firm must be registered as an auditor with a recognised supervisory body.
What are the requirements to have an audit?
An audit is not compulsory for most UK registered companies. At the time of writing, as these requirements are regularly reviewed, the main requirements for a UK company to have an audit are…
1. Your turnover exceeds £6.5million or gross assets exceed £3.26 million or the company is part of a group that exceeds those limits;
2. You are a PLC or a banking, insurance or finance company (or a subsidiary of one of these);
3. You are required by your professional or trade organisation to have your accounts audited;
4. Your shareholders do not agree to opting out of the audit
However, if you are in any doubt if your company requires an audit then you should check with a registered auditor.
Should you have an audit if it is not required by legislation?
There are good reasons for having an audit even if you are not required by law to have one…
An audit involves a detailed review of the company’s accounting systems and systems of control and also requires a detailed understanding of the company’s business. Undertaking such a review can be beneficial in highlighting areas where business advice or improvement is needed;
Commercial lenders sometimes place greater significant and more weight on audited accounts, as such it may aid the business finance process;
When a company is marketed for sale, a history of audited accounts can increase marketability;
The fact that a company’s accounts are being audited may act as deterrent to a potential fraudster.
The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice.
