Audits may seem like a once-a-year routine for many businesses, often associated more with larger corporations than small enterprises. However, audits are increasingly beneficial for organisations of all sizes, offering insights beyond compliance.
They can help identify risks, uncover operational improvements, and gain trust from investors, stakeholders and clients. Understanding when you need an audit, why it might be required, and what it can offer is essential for making the most of this often underused tool.
Audits are not just about checking numbers or meeting legal obligations; they provide deeper financial clarity and accountability. They help confirm that financial records accurately represent a company’s position, reassuring management, investors and other stakeholders. This validation can enhance credibility and open up new opportunities for businesses, particularly in competitive or highly regulated sectors.
One reason audits are highly valued is the security they provide in an era where financial transparency is closely scrutinised. According to a recent study by the Chartered Institute of Internal Auditors, over 60% of UK businesses believe that regular audits have improved their risk management and financial accuracy. This indicates a strong shift toward audits as proactive rather than reactive measures.
Is your business legally required to have an audit?
For certain businesses, an audit is a legal requirement rather than a choice. In the UK, companies meeting specific criteria such as exceeding certain turnover or asset thresholds or having a substantial number of employees must have an annual audit. As of the 2024/2025 tax year, an audit is mandatory if a company exceeds two or more of the following thresholds:
■ Annual turnover: £10.2m
■ Gross assets: £5.1m
■ Number of employees: 50 or more
If your business does not meet these thresholds, an audit is typically optional. However, exceptions apply to certain industries, such as financial services and charities, where stricter regulatory standards may mandate audits.
Many companies, regardless of size, choose voluntary audits to provide transparency and build trust. Investors and lenders often seek independently audited financial statements as a mark of reliability, and a voluntary audit can help establish credibility in a competitive market.
How an audit can benefit your business
Undertaking an audit can yield numerous benefits, even for businesses that aren’t legally required to undergo one. Audits can strengthen internal controls, uncover operational inefficiencies, and identify risks before they become significant issues. Companies often discover ways to streamline processes or improve financial management practices during an audit, ultimately enhancing profitability and stability.
Furthermore, audits offer a chance for fresh, professional eyes to review the business. Auditors often provide valuable insights and actionable recommendations based on their findings, contributing to improved financial practices and reduced risk of costly errors or fraud. According to the Association of Chartered Certified Accountants (ACCA), businesses with regular audits are statistically more likely to have stronger financial systems, which can significantly impact their ability to weather economic fluctuations.
When a voluntary audit makes sense
Sometimes, a voluntary audit makes good sense, even if one isn’t legally required. For instance, if your business plans to secure external funding, an audit can demonstrate to potential investors that your finances are well-managed and transparent. Similarly, if you’re considering selling your business or bringing on new partners, a voluntary audit reassures stakeholders that your business’s financial standing is sound.
An audit can also be a smart move for growing businesses. As businesses expand, they often find that their financial processes must be more robust and may require updates to accommodate higher transaction volumes and more complex activities. For businesses in the growth phase, an audit can provide a roadmap for financial management, ensuring that solid accounting and reporting practices support growth.
Choosing the right time for an audit
Timing matters when it comes to audits. We recommend choosing a time that aligns well with your business’s financial cycle, such as year-end. By synchronising the audit with your accounting period, you’ll minimise disruptions and ensure auditors can access comprehensive data. However, if a specific event – such as a merger, acquisition or significant financing – is on the horizon, scheduling an audit around that period can help prepare your business for scrutiny, potentially smooth negotiations, and inspire confidence in stakeholders.
Bear in mind that auditing firms’ schedules can fill up quickly, particularly toward tax deadlines, so planning ahead is wise. Reach out to auditors early to ensure you have time to prepare and to give them the full picture of your financial health without time pressures.
Preparing for an audit
Preparation plays a vital role in ensuring that an audit runs smoothly. Begin by organising your records, ensuring that key documents are easy to access and up to date. Auditors will typically review your financial statements, ledgers and any relevant transaction records, so having these in order can expedite the process. Engaging with your accounting team beforehand and clarifying complex transactions will facilitate a faster, more efficient audit.
Additionally, communication is key. By maintaining an open line of communication with the auditors, you can address any queries they might have and receive feedback promptly. It’s helpful to encourage your team to see the audit as a learning opportunity to refine practices and strengthen financial controls. Ultimately, this proactive approach can make your audit a positive experience with valuable takeaways.
An audit can be a powerful tool for businesses at various stages of growth. Whether legally required or voluntary, it provides an opportunity to gain deeper insights into your business’s financial health, ensuring that records are accurate, reliable, and optimised for future success.
If you need clarity on your audit requirements, let’s simplify the process together.
Contact Charles Hill at Cottons Group at chill@cottonsgroup.com or visit www.cottonsgroup.com
