How an audit can add value to SME business owners

As an auditor working closely with Irish SME business owners, I am often questioned on the value of an audit and whether the audit fee could be better spent on building the business. While an audit may often be viewed as a necessary evil, there are many advantages in conducting one, even for the small business owner.

Are you required to be audited?

Some businesses or organisations are required to have an audit for statutory or other regulatory reasons. Under current legislation in Ireland, generally an audit is only required if two the following conditions apply:

1. The company’s annual turnover is greater than €12m
   
2. The gross asset value of the company is greater than €6m
3. The company has more than 50 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 a position to dispense with the statutory requirement to conduct an audit and can prepare their annual financial statements on an audit exempt basis.

However, there are certain circumstances where arranging for an audit to be undertaken can be of great value for smaller companies, both internally and externally, and these should be considered before dismissing the audit process out of hand.

What is an audit?

First of all, let’s define exactly what an audit is. In basic terms, an audit is an annual review of your company’s financials. It involves:

• examining, on a test basis, evidence supporting the amounts and disclosures in an organisation’s financial statements
  
• assessing the accounting principles used and the significant estimates made by management
  
• understanding the organisation’s internal control structure as it relates to the overall financial statements
  

At Crowe, our highly experienced team sees first-hand, through collaborative engagement with our clients, how the audit process and its outcomes affect all types of entities.

Benefits of an audit

The following are some of the benefits of conducting an audit.

Compliance
Obviously, the primary reason audits are carried out annually is to meet statutory and regulatory requirements. Organisations who are not compliant run the risk of incurring fines, loss of customers and a tarnished reputation.

Credibility
An audit provides independent verification that the financial statements are a true and fair representation of an organisation’s current performance and financial position. This provides invaluable credibility and confidence to customers, clients, suppliers, stakeholders, investors, lenders and even other directors in the business who are not involved in day-to-day operations. It is a confirmation that financially everything is as it appears to be, making you more likely to be successful in achieving your goals. 

Accountability and security
Accountability is critically important in any organisation. It helps to protect assets against misappropriation or fraud. Workplace fraud can occur for years without being detected and can be so substantial that some organisations never fully recover financially or repair their reputations. An audit can be an effective tool for identifying fraud and any potential opportunities to commit fraud. 

Efficiencies 
A comprehensive audit takes an impartial look at your organisation’s internal systems and controls. Potential improvements to internal controls, business systems, accounting practices, governance and culture can all be identified through the audit process. This in turn should reduce costs and increase the profitability of your business.

Investing in, growing or selling a business

When seeking external investment or capital funding for your business, significantly more detail is being sought from business owners, even for smaller levels of investment or borrowing. Conducting an audit on your annual financial statements will give your financial institution a level of assurance regarding the management and operations of your business activities.

In circumstances where a company is being prepared for sale (or if you are looking to buy), an audit can help to identify existing or potential weaknesses in the business and in its accounting systems. Identifying these weaknesses early 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 net asset position, which will greatly assist with any potential purchaser’s due diligence work.

How we can help

Crowe’s audit team works with a broad range of clients, covering a variety of sizes, industries and sectors. This breadth of experience ensures that we can guide our clients through the audit process seamlessly without any undue stress or inconvenience.

Our team is skilled at uncovering issues and weaknesses within a business, as well as helping to benchmark the business against expected profit margins within their sector and how they can be achieved.

We pride ourselves on bring a value-add approach to audit, helping business owners to identify risks and areas where they can improve their business and meet their personal and professional goals.

If you are considering conducting an audit or have any queries on the benefits that an audit can bring to your business, please do not hesitate to contact a member of our team.