The purpose of an audit is to obtain an independent opinion on the financial statements of a business or organisation.
Specifically, auditors establish whether the financial statements are fairly presented and in accordance with generally accepted accounting principles.
Auditing promotes consistency and objectivity in financial reporting, and helps outside parties to be sure that the financial statements are true and fair.
Here are some examples of when an audit may be required:
As a regulatory requirement
Certain types of entities must have their financial reports audited by a registered auditor.
According to the Australian Securities and Investment Commission (ASIC), a company (other than a small proprietary company), registered scheme (managed investment scheme) or disclosing entity (a body that holds enhanced disclosure securities) must have its annual financial report audited.
Medium-sized charities with annual revenue of more than $250,000 must have their financial statements reviewed or audited, while organisations that fall under the Incorporated Association Act and large charities with annual revenue of more than $1 million must have their financial reports audited.
An audit may be required in certain industries due to regulation – for example, for manufacturers supplying products to the government.
When a company is deemed ‘large’
When a company becomes a large proprietorship, they must be audited, under the Corporations Act.
As of 1 July 2019, the Australian Securities and Investments Commission (ASIC) defines a proprietary company as being “large” if, at the end of the financial year, the company and any entities it controls meets two of the below three criteria:
- A consolidated revenue of $50 million or more
- Consolidated gross assets of $25 million or more, and
- 100 or more employees.
To obtain a grant or investment
If companies or charities are seeking a government grant, they may have to undertake an audit.
The government will need proof that the figures in their financial statements are true and fair.
If your business is seeking investment, an independent audit may also add credence to your proposal.
To qualify for a loan
Lenders require an audit of financial statements if a business wants a loan. This is to protect them and verify the figures within the financial statements are accurate.
If you plan to sell the business
If you’re planning to sell your business, potential buyers want to be able to rely on your financial data, so it’s a good idea to have your financial statements audited. Auditing adds value to your business.
Need help with an audit?
At LDB, we are experienced in providing audit advice to a broad range of clients, from public companies to large and small private companies and not-for-profits.
To find out more about how we can help your business with an audit, call on (03) 9875 2900 or fill in the contact form below.
Editor’s note: This article was originally published in March 2017 but has since been updated to include new information.
