What is a Financial Audit and When Do You Need One?
Synergy Accountants and Estate Planners are excited to announce that from mid-February 2021 we will have a fulltime licenced auditor, Shane Brewer, working in our Mackay-based office. Shane hails from the Gold Coast and has over 25 years’ experience in accounting and business auditing. We are looking to build Shane a portfolio of clients so that he can hit the ground running when he arrives. So, let’s look at what business auditing is and why your business may need Shane’s skills.
What is a business audit?
A financial audit, also known as a business audit, evaluates a company’s financials. When Shane carries out your company audit, you can expect him to review your current financial statements and then highlight any discrepancies and identify your business’ current financial standing.
The financial audit results will be compiled in a written audit report with all the information clearly identified. The financial audit report’s beauty is that Shane can recommend cash flow improvements for your business.
Are there different types of financial audits?
Yes, there are three types of audits:
- Internal audits – These are carried out by employees of the company. Internal audits are primarily prepared for the management or business stakeholders’ benefit and are designed to improve decision-making within the company.
- External audits – Performed by third parties, such as us, these audits are unbiased opinions which can identify misstatements in a company’s financials. External audits are generally seen as more honest than internal audits, as the external auditor doesn’t have a stake in the company and will therefore be less inclined to misrepresent the figures. External audits allow for more comprehensive decision making by business stakeholders.
- Government audits – From time-to-time, the Australian Taxation Office may order a comprehensive audit of a business’ books. The nature of the examination is determined by the reason the books were flagged in the first place, i.e. whether the ATO suspects fraud or evasion, or whether they just want a more in-depth look at certain transactions. The ATO conducts these reviews themselves.
When should my business have a financial audit?
The most common reason you obtain a financial audit is if you are planning to sell your business. Most buyers will want to see your financial data to have peace-of-mind that they are making a solid investment. In this instance, having pre-audited financials ready to handover to potential purchasers may add credibility and value to your business.
Other instances where you may require a business audit include:
- Requisite annual audits for medium to large-sized charities or medium to large proprietary companies;
- If your business is applying for finance;
- If you are planning on restructuring your business or are wanting to review your business plan;
- If you suspect errors or missing information in your financial statements.
Why should my business voluntarily submit for auditing?
Even if you don’t have one of the above reasons for a financial audit, you may still benefit from one because:
- auditing helps identify risks and procedures necessary to manage the risks; and
- auditing evaluates the internal controls, identifies weaknesses and formulates procedures to reduce risks to an acceptable low level.
What documents are required for Shane to do my business audit?
If your business has never had a financial audit, then Shane will require a lot of information, starting with:
- General Ledger: This can be generated in your bookkeeping software and exported to Excel.
- Trial Balance: This is a crucial document for any auditor. Again, this can be generated in your bookkeeping software.
- Listings of all bank accounts, including bank names and authorised signatories.
- Copies of any loans, leases or asset contracts, including balance statements.
- Invoices for any new asset purchases.
- Stock subscriptions and stock option agreements.
- Depreciation schedule (if applicable).
- Board of Directors meeting minutes (if applicable).
- Payroll reports (if applicable).
To make things a little easier for you, you can generate a backup copy of your entire software data, which you can then provide to Shane. Or simply provide him with your login details and he can pull most of the required information directly.
Once you have had the initial audit, the next and subsequent audits will be easier as the auditor can use the initial audited financials as a baseline.
Start the new with peace-of-mind
Running a business is stressful enough without worrying about your company financials. An audit report can eliminate part of that stress as you will learn your areas for improvement, which can help with your business decisions.
Don’t miss out on the benefit of Shane’s 25+ years as a financial auditor. Book your February appointment with him now, by contacting Synergy Accountants and Estate Planners.