As businesses grow and develop, they will often face a multitude of challenges that require careful planning and consideration. In order to guarantee sustainable growth and compliance with all legal requirements, it is critical for businesses to conduct a financial audit.
A financial audit is essentially the process of reviewing financial records and ensuring a business is compliant with all legal obligations. Conducting an audit will enable businesses to gain a comprehensive understanding of their financial situation, including ways in which they can manage risks effectively.
Here we take a look at some of the key aspects of a financial audit and its importance in terms of legal compliance.
Mandatory compliance with legal standards
Depending on the size and performance of your business, you may be required by law to have frequent financial audits. Since 1st January 2016, if your business has at least two of the following, then you may be liable for an audit exemption:
- Assets worth no more than £5.1 million
- 50 employees or less
- An annual turnover of £10.2 million or less
However, it is important to note that you must get an audit if required by your articles of association or if your stakeholders ask for one. Even if you are not ordered by law to have a financial audit, it is still highly beneficial to have one done voluntarily.
Protection against fraud and misconduct
Businesses are often vulnerable to fraud, financial irregularities, and mismanagement within their organisation. If these issues go undetected, the business may find itself hit with legal action in the form of civil lawsuits or criminal charges.
A well-conducted business audit by an independent party can uncover and address these issues. As a result, not only does the business protect itself from legal repercussions, but it also preserves the interests of its shareholders and stakeholders. Having regular external audits can also act as a huge deterrent, preventing possible cases of internal fraud in the future.
Verification of tax compliance
Financial audits provide a means to confirm the accuracy of tax filings of businesses. By assessing financial transactions and records, auditors can see if the organisation has correctly reported expenses, income, and any other financial data to the relevant tax authorities.
By thoroughly analysing tax data, auditors can also provide recommendations on ways to optimise tax strategies, reduce tax liabilities, and improve overall financial efficiency. This transparency and compliance with tax laws can enhance a business’s reputation, which is key for credibility and growth.
In conclusion, financial auditing is a prerequisite that not only certifies compliance with the law but also safeguards businesses from legal implications and fraudulent activities. Adhering to these legal obligations fortifies the company’s legal standing and promotes ethical conduct throughout the organisation.