How Important Are Early Company Audits?

When you’re running a business, it’s vital to be on top of monitoring its financial health.  Additionally, stakeholders need to be satisfied that appropriate accounting policies and methods are in operation.

A statutory audit can take many different forms and depending on the nature, scale, and complexity of your business, one may be deemed more appropriate than the other. Take for example, a small retail company: the audit most likely will focus on stock valuation, cash receipts, and margins. On the other hand, an audit of a large property investment company will most likely focus on property valuation, systems, and funding. 

Other than clarifying a business’s financial situation, an audit report, when presented to potential investors, can also help offer the reassurance they need before making an investment decision.

In relation to this, the main benefits of supplying investors with an audit report include:

  • The credibility given to financial statements — the main purpose of an audit is to verify that the financial statements are true and fair thus helping to build trust with an investor.
  • Improves planning, budgeting, and forecasting — since statutory audits give credibility to historic numbers, this information can be used to forecast ahead and ultimately limit the potential financial risks a business might face.
  • Compliance — for business owners, shareholders, and potential investors, showing conformity to an audit process is one way to show investors that a company is credible and transparent.

As any investor or entrepreneurs know, business transparency is key when an investment decision is being made. Having comfort that the financial statements have been audited increases the confidence that investors have.

Highlighting the importance of this is Andrew Millet from Wisteria Accountants, stating: “Any company that is seeking investment over the next few years should be thinking of voluntarily having themselves audited. Leaving it until the year of investment is often too late”.

Fledgling businesses

Early stage businesses that are seeking growth funds will need to do what they can to encourage investors in. Without a doubt an interesting business model, a credible management team, a good trading history, and robust systems will all help to promote a strong story. A statutory audit will further enhance an investor’s opinion on the target company and demonstrate that the management are transparent, thorough, willing to be open to scrutiny, and operate with a heightened level of integrity.

Often early stage businesses get carried away focusing on sales and product. While obviously it is important that they do this, they must also keep an eye on processes, systems, accounting, reporting, and compliance.  A statutory audit will help companies achieve this.  Investors love a great idea, but ultimately, they need comfort that the management team are reliable, organised, and compliant. An audit will help substantiate this.

Sources

https://www.bdo.global/en-gb/blogs/tech-media-watch-blog/october-1/how-audits-can-retain-investors%E2%80%99-trust-in-times-defined-by-disruptive-tech

https://www.accountingtools.com/articles/types-of-audits.html

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