Voluntary Auditing of Annual Accounts. Yes or No?

Voluntary Auditing of Annual Accounts. Yes or No?

Legislation clearly sets out the mandatory auditing of certain entities annual accounts. However, several entities are not required to audit themselves. That said, there may come a time when the possibility presents itself, and the following question arises: "I don't have to audit myself but am I interested in auditing myself voluntarily?

The purpose of undertaking an Audit is to obtain a report by an independent third party (the auditor), representing a clear and faithful picture of the company's financial situation. It is then registered at Companies House (companies, cooperatives, foundations) and presented to shareholders, potential investors, associates, employers, financial institutions, insurance companies, creditors, significant customers and other entities or bodies.

This aim is to show the entities "numbers" in a clear, straightforward way that "reflects the reality" of the situation in line with accounting and financial reporting rules. If this is not reflected in the audit report, it will indicate the reasons why.

Auditing the annual accounts of a company will undoubtedly incur an economic cost, the price of the service agreed with the auditor, and one in terms of the time which employees take up, and administrators, directors and employees of the audit firm assisting the auditor in their duties.

However, auditing the annual accounts offers many advantages for the entity, and they must be weighed up before voluntarily deciding to audit:

  1. ) Increased levels of trust in the financial information provided in the annual accounts.
    An independent third-party examiner of a company's annual accounts will always rely on information that has been independently audited over data that has not.
  2. ) It shows greater transparency and clarity.
    We understand that an audited company, versus one that is not, projects a more significant image of transparency and clarity in the market to its clients, suppliers, financial institutions, and shareholders outside of the company's day-to-day running once it has subjected its accounts to an audit.
  3. ) It helps facilitate access to funding.
    The transparency, clarity, and reliability of the annual accounts' information often result in a greater tendency of financial institutions and their risk analysis departments to authorise financial transactions.
  4. ) It can help resolve disputes between majority and minority shareholders or between shareholders who participate in the company's day-to-day management and those that do not.
    On many occasions, problems with shareholders usually occur when there is a lack of confidence in the annual accounts' information. The fact that the information has been verified and audited by an independent third-party allays these potential fears and even strengthens or dispels any doubts that may arise.
  5. )It allows you to check the reliability of the internal control and risk assessment systems of the entity that is to be audited.
    Conducting an Audit involves performing a series of tests that includes reviewing the internal control systems set up by the company's administrators/management in order to mitigate any risks that may affect it in its daily business, such as fraud risk, embezzlement of assets, evasion of supervisory controls, risks of logging transactions incorrectly or inappropriately through the misuse of information systems, or a lack of awareness concerning how certain transfers are recorded.
    It does not explicitly involve an audit of internal control systems and processes. However, if they can be evaluated during the audit, it could help identify any potential problems that would not otherwise be noticed.
    The results of the auditor's work and the audit report include various reports informing the company's administrators and management of any significant problems that arose during the audit. Such as substantial shortcomings in internal control, recommendations for improvement, errors identified, differences of opinion interpreting accounting criteria, possible fraud.
  6. )It helps to maintain a culture of quality in the field of financial work.
    Submitting to an audit of a company's annual accounts means that the administrative, accounting and financial staff involved in the process will indirectly have their performance and how they carry out their work with a culture of quality evaluated by the auditor.


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