Auditing has recently been the subject of bad press and increased public debate due to both the collapse of Carillion, and the auditors of BHS receiving large fines for misconduct.
Auditors are independent accountants who are required to give an opinion on the financial statements. But can they add value?
Auditors are required to plan and manage the audit in a professional and efficient manner and should be open and honest. An audit provides a detailed review of a company’s books and records on a sample basis as well as a review of the internal controls.
How do audits add value to a business?
A few areas that an audit can add value are as follows:
- Advice on control weaknesses. Controls form an important part of ensuring reliable and accurate financial reporting and the safeguarding of assets. Controls may be tested as part of an audit and advice can be given to improve these controls to ensure they are working as effectively as possible.
- Add reliability to the financial statements. If a company is looking to be sold in the future or obtain further finance, having an audit can improve the reader’s perception of the accuracy of the financial statements.
- Find and stop instances of fraud. Although not an auditor’s responsibility to detect fraud, it is possible that instances of fraud could be picked up as part of the audit testing.
- Make use of an auditor’s expertise. Discussions between the auditor and management about the business and its future plans could benefit the company as it will be able to make use of the expertise, commerciality and knowledge of the auditor.
- Confidence to management. An audit should give management confidence that the information in the financial statements is accurate, letting them make operational decisions to improve the future prospects of the company.
Author: Chris Morey, Director, Plus Accounting
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