An examination of the books and records of the company to form an opinion as to whether the financial statements prepared from those books and records give a true and fair view of the results of the company for that financial year and of the balance sheet at the year end.
A company’s annual accounts for a financial year must be audited unless the company:-
For audit exemption a company must qualify as small, or have qualified as small in the previous year and therefore be in a year’s grace.
The financial criteria for assessing if a company is small are that two of the following conditions must be met:
Even if a company is exempt due to the above an audit may be required if members with 10% of a class of shares request an audit.
Have a right of access at all times to the company’s books, accounts and vouchers (in whatever form they are held), and
May require an officer or employee, or anyone accountable for any of the company’s books, to provide information or explanations as are thought necessary for the performance of the auditors’ duties.
The audit does not relieve the directors of any of their responsibilities as they are still responsible for the preparation and presentation of the financial statements. It is not the auditors’ function to prevent fraud and/or error, this is the responsibility of the directors.
There are a number of things that can be done to ensure that an audit runs as efficiently as possible.
Firstly, make sure all staff are available during the time that the auditors are scheduled to do your audit. Agree a timetable for the audit with some capacity in advance to gather information ready for audit.
You must deliver the information asked for as soon as possible and if deadlines are set adhere to those. The information provided should be final. Get sign off from the board on the figures before providing them.
A small change to the numbers can result in a huge amount of additional audit work going back and updating the audit file.
Clearly organise information provided, ideally utilising the references provided with the request.
Don't be scared of minor modifications particularly relating to uncertainties with going concern that are relating to a future event. They are much more common than they used to be as the auditor has to express a positive going concern opinion and therefore users of the accounts are more expecting of them. A modification sometimes is the most cost effective way of closing out an audit and can give the users a lot of useful information about the matter in question to enable them to form their own view of it. The precise nature of the modification will impact your assessment of the level of concern at including it.
Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please contact us if you have any questions about the information set out above.