Why SMEs should embrace financial audits

© Zawya BusinessPulse 2015

© Zawya BusinessPulse 2015
A financial audit involves a comprehensive examination of a business' financial transactions and positions, and is something that large corporations are required to do every year. SMEs are subject to less demanding reporting requirements, but a full annual audit is something that they should still be doing as a matter of course.

There are two kinds of auditing - internal and external. An internal audit is so called because it's conducted by an employee of the company rather than an external auditor. When it comes to SMEs, any internal audit is likely to be carried out by the business owners themselves. If budgets are limited, a company is unlikely to want to employ a full-time auditor as it just doesn't make financial sense.

An external audit is conducted by an outside body that will objectively examine the business' finances as well as look closely at how well internal controls are working. It's worth keeping in mind that for some business deals or lines of credit, an external audit will be required.

Here are six reasons why audited accounts are important for any company, more importantly, small and medium businesses.

1. OBJECTIVITY

If the accounts are only looked over by an employee or the business owner, it can be easy to miss any warning signs. You're likely to be too close to your own business, so a full audit will give the objectivity that's needed to spot if something's not quite right.

2. EXPERIENCED EYES ON YOUR ACCOUNTS

If your accounts are properly audited, the auditor will have the knowledge and experience to see if there's a problem and know what to do to rectify it.

3. LEARNING OPPORTUNITIES

An audit allows you to look closely at how your finances have been managed over the previous 12 months, and if you encounter any issues, it means that measures can be put in place to avoid the same things happening in the future. It also gives businesses the chance to see how well their internal controls are working and change procedures if necessary.

4. MONEY SAVING

As well as being able to see what activities are too time and resource consuming, an account audit will highlight any unnecessary expenditure that can be cut.

5. FRAUD PREVENTION

Quite often, employee fraud or theft only continues over time because there are no checks or controls in place to discover them. A full audit of your accounts and financial position will make any fraudulent activity obvious and gives you the opportunity to tackle it.

6. INCREASED AVAILABILITY OF CREDIT

Many companies or financial institutions will only consider offering lines of credit to a business with fully audited accounts. While it is possible to have an ad-hoc audit completed when you're turned down for credit for this reason, it's much quicker and easier to have your annual audit details ready for this very reason.

If your company is growing, it may reach a stage where you're required by law to audit your accounts. If you already have an annual audit, it's going to make the process easy and painless for all involved.

© Zawya BusinessPulse 2015