What is an audit?
The purpose of an audit is for an independent third party to examine the financial statements of an entity. This examination is an objective evaluation of the statements, which results in an audit opinion regarding whether the statements have been presented fairly and in accordance with the applicable financial reporting framework. This opinion greatly enhances the credibility of the financial statements with users, such as lenders, creditors, and investors. Based on this opinion, users of the financial statements are more likely to provide credit and funding to a business, possibly resulting in a reduced cost of capital for the entity.
There are two main types of audits: external audits and internal audits.
Internal auditors are generally employees of the company although some companies will still engage external representatives. Their main role is to provide assurance that an organisations risk management, governance and internal control processes are operating effectively.
Internal auditors will provide the board of directors or senior management team with a report based upon a wide variety of factors such as the reputation of the company growth and their impact on the environment. This report serves as a management tool to improve processes and controls within the business.
External auditors are appointed by shareholders and the auditor will perform their audit in accordance with the specific legislation that the accounts have been prepared under, commonly for incorporated companies in the UK this is FRS 102. Most auditors will have gone through extensive training and obtained one of the four main professional qualifications, who will uphold the integrity of the auditor and ensure that they remain credible to undertake these types of assignments.
An unqualified, or clean, audit opinion means that the auditor has not identified any material misstatement as a result of his or her review of the financial statements.
Where a full statutory audit is not required, companies may consider other types of assurance work over the financial position. An assurance review can provide both internal and external confidence over the financial statements and depending on the scope of the work, could cover the full financial position, or just a key area of concern.
There are several factors to consider when deciding on whether or not to take the annual preparation of accounts one step further and to have an assurance review, especially if a full statutory audit has been performed previously.
An Assurance Review will consider and review all aspects of the financial data and unlike an audit will not result in an opinion on the accounts, but it will provide additional level of confidence over the financial statements. A report is appended to the financial statements which will highlight to user that a review has been undertaken. An assurance review is therefore less intensive and more flexible than the statutory audit you may be used to.
The Assurance review will give confidence to the users of the accounts, both internally and also externally. So a potential lender, supplier, Customer or even an employee could be encouraged to see an assurance review report on financial statements.
At Nicholsons our Audit team has the expertise and the knowledge to deliver a full audit across a wide spectrum of businesses and industries.
We will help your business with the following;
- Identify and resolve commercial issues and improve processes within the business;
- Secure peace of mind knowing that your statutory obligations have been met;
- Reduce risk within the business and improve practices within the business by challenging the current processes where necessary;
- Use our knowledge gained to help you drive your business forward.
If you would like to speak to one of our audit team members, please give us a call on 01522 815100.