Guide to Auditing: What It’s Going To Look Like In 2021 And Beyond

22nd April 2021 | Audit

Auditing is an essential part of your business’s accounting process as it allows you to be as transparent as possible with your stakeholders. The whole process has been put in place to help businesses provide credibility to their finances and assure everything, which has been conducted, is fair. Some audits are required by law and won’t interfere or change any of your financial documents because the accountants carrying them out simply examine existing documents.

Auditing was introduced several years ago by governments as a method of keeping tabs on businesses accounting. It proved the most effective way to ensure that a company’s dealings were fair and didn’t suggest any criminal non-compliance. Monitoring the financial actions of businesses and requiring that they provide evidence of fair dealings was essential, especially with the lack of technology available at the time. Monitoring tax compliance and measuring tax due was also a huge benefit of auditing in this way.

At Williamson & Croft, we have over 15 years of experience, over which time we’ve accrued a wealth of knowledge that has allowed us to carry out effective and highly accurate audits for a range of different businesses. We’ll educate you on the specifics and make sure you’re always aware of what stage the process is at. We currently operate as accountancy service providers in Manchester and Liverpool. To get started on your business’s audit today, call us on 0161 3990121 if you’re based in Manchester, 0151 3033112 if you live in Liverpool or email us at info@williamsoncroft.co.uk.

What Are Audits?

Auditing is an examination of a business’s financial statements by an auditor to check that all statements and claimed transactions are legitimate. Essentially, our auditors will review the documents to properly assess whether profits and losses have been accounted for and that any record of what is owed is properly reflected in the business’s balance sheet.

Once the audit has been completed and your business’s finances have been verified, you will receive an audit report, this is a document containing an auditors opinion on whether a company’s financial statements comply with the generally accepted accounting principles (GAAP) and are free from material misstatement. Now that the legitimacy of your businesses finances have been checked and proved to be accurate you can prove to potential investors that all of your financial statements are above board. The same concept applies to banks, should you wish to loan money, an audit acts as perfect proof that you’re in a financially stable position and will be able to repay the loan with minimal risk involved.

There are various reasons why specific types of audit may need to be conducted For example, a statutory audit is required by law when a business meets certain criteria, however, small businesses are exempt unless they are a charity, in which case they would follow a different set of guidelines. Small companies must also meet 2 of the 3 following criteria to be exempt: Turnover must be below £10.2m, the balance sheet total must be less than £5.1m and the average number of employees must be less than 50. Although meeting these criteria rules that a business is exempt, a statutory audit may still occur if a shareholder, grant provider or lender requests one. Non-statutory audits, however, are not required by law but can be undertaken at the business’s request. This would be done to prove that the business’s financial records are true and fair, allowing them to present their statements to potential investors in order to grow and expand their business.

Within the definition of audits, there are differences between audits carried out internally by an internal auditor, or those carried out externally by an external auditor. An internal auditor is someone who works within the company and would essentially be classed as another colleague to those who work there. The reason why a company would hire an internal auditor is entirely for their own gain to ensure everything is in working order. The company may not even be required by law to have an audit conducted, but it’s an opportunity for the business to showcase that their success has been evidenced and documented properly.

Hiring an internal auditor to explore the financial operation of the company brings with it the opportunity to work with them, and the more transparent you are with them the greater your ability to learn. Shortcomings and potential security issues can be fleshed out allowing the business to essentially right their wrongs and improve processes moving forward. By taking this initiative themselves, the company can ensure that everything is in working order before an external auditor comes into play, assuming that’s what is required. Actioning the audit themselves allows them to prove to outside sources that they are above board before external audits are carried out.

External audits are carried out by a third party and not someone that is within the business. They are called in to provide transparency to the relevant parties associated with the business and will interact differently with your business. An internal auditor is often employed by a company to test systems & processes before an impartial auditor comes in to fully examine financial records. If an audit is required by law, there is little a business can do to prevent it from happening, however, they don’t have to release the results of the auditing report. The only drawback of that being it will raise suspicion amongst potentially interested parties and would suggest that the business has something to hide, leading to their market position being damaged.

External auditors will carry out their auditing process over a period of time and will be examining statements to ensure compliance with ISO Standards. There may be specific requirements in place which the auditor will have to meet, potentially causing the audit to last longer than initially planned. If there are any errors or statements which don’t match with the information provided, they will have to take corrective actions, otherwise, your business will be unable to receive ISO Certification.

In addition to the two types of audits we mentioned, there are also government audits. Government audits are generally recognised as tax compliance checks and are carried out in order to explore a company’s taxable income statements. The auditor will likely check your company’s statements if you are VAT registered or have employees through a PAYE (Pay As You Earn) system. These tax audits can become routine checks if HMRC has reason to believe there are errors in your financial statements or your business is concealing income. Typically, though, these audits will only take place once every five years or so.

Errors in your methods could result in HMRC looking into your audit records and attempting to identify the problem. There are a series of events that could take place, causing HMRC’s attention to turn to your business. If tax returns are filed late or if tax is paid late, this is a big red flag and could trigger an investigation into your tax affairs. Other factors, such as inconsistencies between returns representing huge increases or decreases in income, and costs are also likely to raise suspicion.

There are certain procedures in place when a government audit is being conducted and certain things you can do as a company to comply and ensure it goes as smoothly as possible. Things you can do to help the process along is getting an accountant, such as the ones here at Williamson & Croft, to check your records and accounts to provide up to date, accurate information. When the auditor turns up to inspect your financial standing, they will be able to complete the process much quicker and will be less likely to penalise you for shortcomings. Failing to provide the correct documents upon request can result in severe penalties and potentially implicate fraud. As a business, you do have rights over certain sensitive information but for the most part, cooperation is the best way to get the process complete quickly and show that all of your dealings are accurately represented.

The Future Of Auditing In A Post-Covid World

If the last 12 months have taught us anything it’s that the way we work, and thus, the way we audit, is going to change completely, and permanently. Here at Williamson & Croft, thanks to cloud accounting technology and a nimble, adaptable workforce, we have the capability to conduct thorough audits, remotely, with ease.

Here, we’re detailing three ways that the future of auditing will be different, and how we are best placed, as accountants in both Manchester and Liverpool, to help.

Remote Auditing

As businesses and people recover from this turbulent year, the ways in which they work will have changed forever. More and more people will opt to work remotely, enjoying the work/life balance that it promotes, as a result, the audit process is going to have to adapt to this change in working. It’s vital that auditors can still enact thorough procedures for their clients remotely because they shouldn’t be punished for offering their staff more flexibility.

More Flexibility And Adaptability

Auditing is no longer going to be the rigid tried-and-tested process that it once was. Auditors must be flexible and adapt to each business that they audit and understand that post-pandemic, they are all going to operate differently and have been affected in a variety of different ways. All this has the potential to impact the audit process, be that through the types of records that need to be examined to the number of people that need to be spoken to – all this should be considered by both businesses and auditors alike.

More Reliance On Technology

Cloud accounting and the use of applications and software to conduct business accounts has become more and more popular, especially during this pandemic. Each system available has its benefits and drawbacks and can suit different companies in different ways. Auditors are going to need to be far more open to different applications and technologies in order to complete audits with the same level of care as if they were in an office.

As we’ve explained, the usual process of auditing is very hands-on and revolves around people meeting and collaborating, which is obviously made more difficult by the pandemic. As a result, it is vital that companies, which require an audit, work with a group of accountants who are able to adapt. Thankfully, here at Williamson & Croft, we’re able to adapt and help your business no matter what its set-up is post-pandemic. We have spent these months tweaking our process to ensure that our valued clients, both new and old, still receive a fantastic audit service from us. To learn more about how our process is different, be sure to get in touch with our audit partners by phone on 0161 3990121 if you live in Manchester, 0151 3033112 if you live in Liverpool or email us at info@williamsoncroft.co.uk.

Why Are They Important?

Audits are important, especially for large businesses that have statutory audit requirements, however audits can have benefits that simply extended beyond verifying your business’s finances. As professional auditors ourselves, when we carry out an audit for your business, we are able to understand the workings of your business and identify any potential vulnerabilities in your finances. This allows us to recommend a change in approach to achieve a better way of operating and ensure your business is less liable to potential fraudulent activity.

By auditing your business’s finances, you are providing credibility to your financial statements and are able to present your audit logs to any potential buyers, should you be looking to sell your business. Being able to prove audit records gives your business a much better standing in the marketplace, proving to buyers that your accounts are free from error or fraud. In the same way that your audit records can give potential buyers interest in your business, they also reassure shareholders and help boost confidence. Audits are able to provide transparency and bring to light any issues that may have been otherwise hidden, just as an audit that brings up no issues proves to shareholders that everything is in order.

There are a lot of benefits to having financial audits carried out on your business, most of which appear to be external. A positive evaluation of your business can make the business look good from an investment point of view and to other external sources, but there are benefits to audits internally too. For example, by having a dedicated auditor and auditing system in place, those people are able to use this to identify future goals and objectives for the business. Essentially the audit records will provide evidence for an in-depth look into the business’s financial situation and provide an accurate basis to determine growth and projected targets plan. This type of audit is carried out by an internal auditor, working within the business to provide an accurate audit report.

Just as internal audits can provide a business with an accurate basis to plan goals, they can also allow them to identify any errors or mishandling of finances. Carrying out an internal audit provides the business owner and shareholders with an in-depth examination of financial statements which will highlight any issues relating to poor financial management, giving the relevant parties the opportunity to act before it’s too late. Without an audit, serious mistakes can go unnoticed and can prove debilitating for the business in the long run. Enlisting an internal auditor gives the business the opportunity to examine and check for compliance with laws and regulations in a much more casual setting, without an auditor, that is required by law, being there. After all, your internal auditor is there to help you show integrity in your dealings, not harm your business. In the same vein, this can be used to maximise the efficiency of the business, by identifying poor practices and working to improve them based on the results of the audit process.

The importance of audits are not to be understated and, as you’re aware, provide many benefits to the client in question. Delivering accuracy in financial statements helps wave any concerns and ensure that requirements for certain policies are being met. Up to date audit logs can then be provided to interested parties should there be any requests and assuming all is well, can assure them there is no risk of non-compliance. Of course, the different types of audits provide various different benefits, especially if it’s an internal audit as it will enable you to match the standards and rules set by the external auditor before they conduct their financial statement audit.

Contact Williamson & Croft

At Williamson & Croft, our mission is to support your business and help with business strategy, tax, reporting and advice, to ensure you can reach your full potential and achieve your goals. We’ll carry out an extremely thorough audit of your financial documents using the latest accounting software and auditing technologies. If you’re unsure of the intricacies of the process or how it will affect your business, we’re on hand to help with that too.

With over 15 years of experience in both auditing and general practice accounting, we’ve accumulated a wealth of knowledge which makes us the perfect choice to audit your business’s finances. Upon completion of the audit, we’ll meet with your business management services to discuss our findings and how these can be used to outline a growth plan for your business. Our aim is to help your business succeed and in doing so, avoiding any issues with non-compliance. To begin discussing the process with us today call us on 0161 399 0121, if you live in Manchester, 0151 303 3112 if you live in Liverpool or email us at info@williamsoncroft.co.uk. We currently have offices in Manchester and Liverpool, two of the UK’s most thriving cities.

Williamson & Croft is a market leading accountancy, advisory and tax firm with particular specialisms in property, construction, retail, digital and creative, technology and professional services.

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