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Why an audit matters

  1. To comply with legal requirements
  2. To ensure the accounts are true and fair
  3. To check basic financial disciplines are being applied
  4. To help in obtaining finance
  5. To assist in the expansion or sale of a business
  6. To help detect fraud and error
  7. To help process year end adjustments to ensure stocks, debtors and other Balance Sheet items are correctly stated

Under common law, all companies other than those which are exempt under the rules of the Companies Act are required to have their annual accounts audited by a qualified, independent auditor. To be exempt, a company must meet a number of financial and non financial criteria:

  1. Turnover is less than £5.6m
  2. Balance sheet total is £2.8m or less
  3. Maximum of 50 employees
  4. That the Company meets two out of three of the above criteria both in the year under review and the previous year

These criteria apply to accounting periods ending on or after 30 March 2004.

Even if the Company is exempt from an audit by virtue of the above criteria, it might still be desirable to have an audit.

A Company's bankers might require an audit, regardless of the statutory exemptions in order that they can rely upon the accounts as a basis for making lending decisions and subsequent monitoring of the financial health of the Company.

An audit seeks to establish the accounts are true and fair and free of material misstatement. Without an audit, it is possible that bookkeeping errors or inappropriate accounting policies might result in the accounts being inaccurate.

An audit lends credibility to the accounts, which is important for Directors of the Company who may use them in the decision making process. It is also important to actual and potential investors and shareholders who might be distant from the management of the Company. Suppliers, customers and employees will have greater confidence in the Company if the accounts are audited as an independent opinion will express if the accounts are true and fair.


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