As Auditors we are often questioned on the value of an Audit for a small business owner, with the biggest comment being “Surely the money spent on an Audit could be put to better use in developing my business”. While many may believe that an Audit is outdated and a money wasting exercise there are many advantages in conducting an Audit, even for the small business owner!
Over the last ten years or so the requirements to conduct an Audit have been confined more and more to larger companies. Under current legislation in Ireland an Audit is only required if two the following conditions apply;
1. A company’s annual turnover is greater than €8.8 million.
2. Gross Asset value of the company is greater than €4.4 million.
3. The company has more than fifty employees.
Many small businesses in Ireland may not achieve the above levels of turnover, net assets or employees and on that basis they would be in the position to dispense with the requirement to conduct an Audit and prepare their annual Financial Statements on an Audit Exempt basis.
However, there are certain circumstances where arranging for an Audit to be undertaken can certainly be of great value for smaller companies and these should be considered before completing dismissing the Audit processes out of hand.
The following are a number of benefits to conducting an Audit for the small business owner:
1. Preparing your business for sale.
In circumstances where a company is being prepared for sale an Audit can help to identify any existing or potential weaknesses in the business and in its accounting systems. By identifying these weaknesses early it gives the owner an opportunity to address and correct them well before a business is placed on the market. An Audit will also enhance the credibility and reliability of the company’s trading performance and of its net asset position, which will greatly assist with any potential purchasers due diligence work.
2. Improving business efficiencies
While you may not be looking to sell your business, small business owners are always looking to improve efficiencies in the day to day operations of their business. By identifying existing or potential weaknesses through an Audit, it gives the small business owner the opportunity to work on such inefficiencies and improve the overall running of the business. This in turn should reduce costs and increase the profitability of your business. An Audit can also provide the small business owner with details of expected profit margins and how they can be achieved.
3. Provide assurance to other directors
While a number of small businesses in Ireland have more than two directors, the day to day running of the business is generally managed by just one of these directors. In this situation, conducting an Audit would provide assurance to the other non active directors that the business is being run well and in an efficient manner, as weaknesses would be address and resolved on an annual basis.
4. Provide assurance to bankers
It has been a difficult few years for the small business owner, particularly those who have significant bank borrowings. We understand that banks are now looking for significantly more detail from the small business owner, even for smaller levels of borrowing. By conducting an Audit on your annual Financial Statements it will provide your financial institution a level of assurance regarding the management and operations of the business activities.
5. Improve controls and reduce fraud
When you established your business you implemented controls and procedures on how your business was to be run on a day to day basis. However, these controls should be monitored and improved on a regular basis. As part of their Audit procedures, your Auditor will review and test these controls to ensure they are operating in an efficient manner. If weaknesses are identified by the Auditor they will bring them to your attention and make suggestions how such weaknesses can be overcome. In addition, your Auditor will review your procedures for the prevention and detection of fraud, which is vital to all business as such fraud could have a significant impact on your overall profit.
Reassurance from your Auditor
While an Audit may involve a greater level of work and therefore a slightly higher fee than simply preparing a Company’s Statutory Financial Statements on an Audit Exempt basis, such an increase in fees could ultimately be a relatively small investment when you take into consideration the benefits which can be achieved from an Audit. There is a misconception that your Auditor is there to find errors in your business and point out your mistakes. However, for the small business owner your Auditor is probably you’re most trusted advisor. As Auditors ourselves we feel our greatest success come from helping small businesses to grow, through working closely with the small business owner on identifying area’s where they can improve their business.
If you are considering conducting an Audit or have any queries on the benefits of an Audit for your business please do not hesitate to contact a member of our team who will be happy to assist with any queries you may have.