While public companies and large proprietary companies are legally required to have their financial statements audited, the same doesn’t apply to smaller, private businesses.

However, there are times when it is desirable, and sometimes mandatory, for a small or medium enterprise (SME) to undergo an audit.

There are some benefits for an SME to get an audit, such as demonstrating consistency and objectivity in financial reporting, and establishing a clearer view for planning future business activities.

What’s an audit?

An audit is an examination of the annual financial records of an organisation. It is conducted by an independent person who must follow the standards established by the Auditing and Assurance Standards Board, a federal government body.

The purpose of the audit is to form a view as to whether the financial report accurately reflects the financial position of the company.

It’s a detailed process that includes talking to management, testing internal controls and examining a sample of financial transactions.

The auditor will be looking to see that anything listed on the financial statement have supporting evidence to substantiate the amount.

Depending on the type of business, plant and equipment may be examined. An audit will also reveal if internal controls are lacking or inadequate.

What are the benefits?

The key benefit of an audit is to provide owners and management with confidence in the accuracy of the financial reports.

This allows for better planning and makes it easier to budget for future business and upcoming events.

An audit may also detect signs of fraud, a particularly important consideration when owners are not actively involved in the day-to-day running of the business.

Which entities should consider an audit?

Audits can benefit all types of business, but particularly:

• Entities run by a management team that is separate to the owners
• Growing businesses that require investors. A business that has passed an audit is a less risky proposition for potential investors
• Entities that are planning to list on a stock exchange
• When a bank requires an audit. A successful audit may result in the bank offering lower interest rates
• Organisations wanting to improve their internal controls.

Entities of all sizes can benefit from an audit. Where deficiencies are discovered, the auditor can provide advice on how to address any problems encountered.

On the other hand, a clean bill of health equips owners and management with the confidence that their financial statements and internal processes are sound.

This doesn’t necessarily mean the business is in good shape, but with the knowledge that they are working with accurate information and good processes, owners and management are better equipped to make decisions that will underpin the future success of the enterprise.

Speak to the audit experts

Interested to know how an audit can help your business? Need to speak to someone with auditing expertise? At LDB, we can help. Simply call (03) 9875 2900 or fill out the contact form below and we’ll be in touch.