How an Audit Will Protect Your Company from a Financial Fiasco
Auditing for your business often sounds like a scary word, but in reality if you do it voluntarily it is very beneficial. Today we are going to look at different positives about having your company audited and how that can save it from a financial fiasco.
When you Must Have an Audit?
In certain situations you are required by law to have your business audited. The criteria is as follows:
- Your turnover is above $10.2 million
- You have more than 50 employees
- Your business assets are over $5.1 million
These figures apply to periods after January 2016. If your firm is going through an audit for periods before that date, check this article for the relevant criteria.
How an Audit Can Save or Destroy a Company?
Unfortunately, the examples of big corporations failing official audits are not few. Bad audits also carry the risk of potential bankruptcy and really serious issues in all areas of business. This happened to one of the biggest UK construction companies Carillion, which was audited by KPMG in 2014. The business actually collapsed at the beginning of this year due to accumulated debts they couldn’t keep up with. The audit done 4 years ago should have pointed related issues out and if done correctly might have prevented Carillion going into administration. You can read more details about this story in this AccountingToday article.
A contrasting case, where an audit well done discovered important issues and prompted the company to deal with them in a timely manner is of MetLife. During the audit it became clear that the New York insurer does not have enough money to pay some annuity and pension clients. The company released a statement saying they are currently reviewing their processes and rectifying the mistakes to prevent further customer disappointment. More information about MetLife and their audit is available on Bloomberg Technology.
What Can an Audit Bring to the Table?
An external audit adds more credibility and weight to your financial statements. It is especially important in the cases of non-profit organizations, close-held partnerships or corporations and family business. The audit will boost the confidence of the public and your customers in the transparency of your operations.
Improvement of Processes
As seen from the examples above, an external audit has the power to discover underlying issues that can cause serious damage to the reputation of a company and the business as a whole. Having your firm audited will help you identify the areas and processes that need improvement to ensure you will continue to be successful on the market.
Prevention of Fraud
Another major business killer is fraud. You would like to know if fraudulent activity is going on in your company and an external audit can help you find out. Experienced auditors will give you detailed information on the processes and people involved so that you can take action on time. Furthermore, if you leave things like they are and decide not to bother, the IRS may decide to audit you if they suspect any fraud. Then you are likely to lose your business, financial stability and be prosecuted as a criminal. There’s more information about government compliance here.
A Boost to Your Value and Credit Score
Passing an external audit is a great sign for potential investors for your business. It gives them the assurance that the company they are interested in has established good practices and complies with all laws and regulations. Auditing also boosts your credit score and it makes you more likely to get bank loans and mortgages.
There are many more reasons for signing up for an external audit, which you can find here.
FAS CPA & Consultants offer auditing services to U.S. businesses of all sizes. We will provide you with extensive value needed to secure your successful path in the future. Get in touch with one of our advisors today and rest assured you are doing the best you can for your organization.
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