It hasn’t been legally necessary for small companies to have an external audit since 2012. But many small companies continue to do so on a voluntary basis. Why is this?
Ultimately, shareholders and directors see the positive value in having their financial statements audited. What this value is usually depends on the circumstances of the individual business in question; however, there are a number of key benefits to having externally audited financial statements.
Assurance for external funders
Banks and other funding providers place significant value on independently audited financial statements. In many cases lenders require companies to have an independent audit as a condition of loan agreements. If an organisation is seeking to obtain new loan funding, a history of audited financial statements can provide an unparalleled level of assurance to prospective lenders, which may make the difference in whether or not a loan is agreed.
Assurance for shareholders and directors
Many SMEs devolve their day-to-day running to one or two directors on behalf of the shareholders. An independent review of the financial statements can provide great comfort to both directors and shareholders, without putting undue strain on personal relationships. Recommendations made by an impartial auditor can validate why the right key decisions are made by a director, whilst fellow shareholders will have confidence that an independent review will keep the board and the business on the right track.
Assurance for prospective investors
Consider a case where a business is seeking to grow by way of external investment, or where shareholders intend to sell the business. Similar to a bank, an investor will place a much higher value on accounts that have been externally audited, compared to those that have not. If an investor has a number of potential companies in which to invest, those with a history of audited accounts may prove more attractive than those without.
Tendering for a contract
Take, for example, a company seeking to supply services to a body such as a local council, a university or the NHS. The procurement policy will require a tender process to take place. In a significant number of cases, a higher weighting or score will be attributed to audited accounts compared to unaudited accounts. The higher score may be the difference between winning the contract or not.
Could an external audit benefit you?
Whatever the reason, there are many positive tangible benefits to having externally audited accounts. If you would like more information on how to get the most from your audited financial statements, or to discuss your audit requirements, please contact Jeremy Chittleburgh on 0131 558 5800.