The importance of external audits to a small business
An external audit is an examination of a business' financial statements by an independent organisation, by a registered audit firm such as ourselves. Accounting is the primary tool for recording, reporting and analysing financial data for a business of any size, and hence, must be working at optimal proficiency to ensure the business remains at its very best. Small business owners can use external audits to review their accounting and finance strategies and highlight any areas that could be further enhanced. By comparison, an internal audit is undertaken by your own staff who have an interest in the success of the company.
Below we have identified a number of reasons that completing external audits rather than, or as well as internal equivalents is so important to the small business owners of today.
Independent Business Credibility
One of the main advantages of employing an accountancy firm to conduct an external audit for your small business is that your financial statements will be significantly more credible if a party with no stake in your businesses success or failure vets them. As external auditors do not work directly for your company, they will not be tempted to succumb to any pressure of obtaining a favourable result. This is especially important when you are in the process of building a strong reputation within your sector, are wishing to seek assurance for external funders such as prospective lenders or are considering selling the business in the foreseeable future.
Optimisation of Internal Workings
As an employee of your company, an internal auditor may struggle or even refuse to critique the internal workings of your business to allow it to run more efficiently. External auditors, however, are able to analyse your current workings, and make structured recommendations in order to optimise the ways in which your team monitor and maintain its financial health moving forwards to reduce the chance of misreporting or fraud.
Hiring somebody who is not familiar with the current workings of the business allows them to pick up on issues that may have previously gone unnoticed that are easily corrected. Errors in the current accounting methods can prohibit business owners from making the most informed decisions for the company. External audit procedures are therefore designed to detect errors (large or small) or fraudulent activity, allowing the key managerial team to make the best choices for the company. This essentially enables stakeholders to cover their backs when it comes to ensuring the business complies with the many regulations that come with accounting within a registered entity.
Business Tax Compliance
Having a business which is not tax compliant can jeopardise the entire foundation that it sits on, as well as running you at risk of HMRC inspections or even fines. Once again, the advantage of hiring an external auditor is that the firm is not affiliated with your company and can freely evaluate the business without the fear of repercussions if stakeholders do not like what they have to say. This can avoid further issues arising with tax compliance and ensure that any errors are highlighted and resolved, rather than swept under the carpet, which could ultimately make things worse.
We are by no means suggesting that you cease all internal audits of your business, as these remain an important component to the continuous monitoring of the company's financial wellbeing. Frequent internal audits combined with the use of external auditors on a slightly less frequent basis will ensure that your company remains compliant, credible and that internal procedures are kept up to date at all times.
If you are considering hiring an external entity to run an audit of your small business then why not get in touch with a member of our specialist team to discuss your individual requirements and receive a free, no obligation quote.