Most of us know audit refers to an official inspection of accounts of a company. This inspection is done by an independent body normally. It has been observed that several organisations in the UK are in need of an audit, however, they are not very clear about what exactly is the purpose of an audit and when do they require it?
When Is An Audit Required?
This is important to know for an organisation when it actually requires an audit. An audit becomes a legal requirement in case it meets any one of the following thresholds:
- The strength of employees crosses the figure 50.
- The asset of the company is more than £5.1m.
- The turnover of the company is more than £10.2m.
In some cases, a company has not crossed the above-mentioned figures but even then it requires an audit. Wondering why? It is possible when the company is likely to be part of a group that reaches the discussed figures or crosses them.
What Is The Purpose Of An Audit?
By now you must be wondering about the purpose of an audit and why it is required? The financial statement of a company is so important that it gives a picture of financial health. What is required to be changed, grow, or mold for a better business future.
The financial statement needs to be crystal clear to identify where a company really stands. An audit is kind of an independent opinion about the financial statement of the company. The main purpose of the audit is to get that third party opinion about the accounts inspection and financial statement to realise the growth of the business.
This opinion is associated with the following factors:
- The financial statement must communicate a fair view of the finances of the business.
- The financial statement is made according to the required standards of accounting.
- Auditors are accountable to identify the material misstatements.
Moreover, there has been a misconception about the auditors that they are liable for identifying all the misstatements through the process. However, that is not the case. Only material misstatements are required from the process.
Importance of An Audit
No matter what kind of business a company might carry out. Each one of them intends to achieve a certain and fair level of position and financial health. The process of an audit helps the organisation to achieve its ultimate goals. Some of them include the following which also adds to the importance of an audit. Have a look:
- A fair picture of the financial performance of the company.
- The true position of the business is carried out by the company.
- Realising the valuable insight after the process of audit.
- The factor of accuracy and managing accounts in a more smart way with comfort.
- Systematic errors that were happening throughout the year are fixed.
Furthermore, The process of an audit is no doubt critically analysing the management decisions and it challenges the internal control. However, if you see it with a broader spectrum, this always helps to improve the internal system and financial health of a company.
So, one can’t deny the importance of valuable feedback and the external perspective of the company. Eventually, this will help to grow the level of business.
Now that you have developed a better understanding of the purpose of an audit and relevant details, we can sum up the discussion finally. There is no doubt that the process of an audit challenges the internal control of a company. However, it ends up developing business valuation as you learn the unseen mistakes that are being carried out throughout the year.
On the basis of third-party perspective and insight, you can develop strategies that will help your business to grow. The organisational performance will improve which will secure peace of mind and reduce the risk of business falling down in the future.
We hope these few minutes of reading will help to make the right business decisions.
Disclaimer: The information about the purpose of an audit explained in this article is general in nature. It does not intend to disregard any professional advice.