Businesses owners often juggle multiple tasks and with so many things to do, auditing might feel like a burden. We understand your struggle is real, but then you need to know that auditing is a legal requirement that even small businesses must follow.
What are audit requirements as per law?
The Corporation Act 2001 requires that a business should get audited if:
- Annual turnover exceeds $50 million
- Assets worth exceeds $25 million
- More than 100 employees are employed
If your small business doesn’t fall into any of the above categories, even then it may be beneficial to get audited. Before we move to the benefits of audit, let us understand what an audit is all about.
What does a business audit involve?
The main idea behind business audits is to examine the financial records of a business to verify its accuracy. During the audit, an auditor analyses the financial statements as well as the ledgers and accounting records to ensure there is no gap in financials. There are two types of audits, namely internal and external audits.
Internal audits are conducted by the business itself to ensure that there are no errors in the financial reporting. Internal audits are carried out by the employees of the business. These audits help businesses in meeting their goals.
On the other hand, external audits are to be carried out by registered auditors, not being employees of the business. It is conducted keeping in mind the Australian Auditing Standards. Reports are issued by external auditors based on detailed analysis of evidence.
Reasons for small businesses to conduct an audit
- You can be sure that the financial statements that you lodge to the ATO represent a true and fair view. This means that your small business can avoid unnecessary penalties.
- Regular audits ensure that your financial reporting is organized and accounts are clean.
- Audits give you insight into your business finances which helps you to take important financial decisions.
- Audit findings can help in bringing out any issues in business as well as internal controls and identifying financial frauds.
Large businesses are required to get external audits done annually. However, for small businesses there is no such obligation; but it’s better to conduct regular audits to ensure smooth financial reporting.
Top three situations when your business might require audits
Sale of business
If you are selling your small business, then the buyer would rely on audited financials only to understand the viability of buying the business.
If you are applying for obtaining government for your business, then you would require audit report to substantiate the amounts reflected in financial statements.
Partnership and LLC agreements
If you plan to enter into partnership or LLC agreements, then you must get your business audited. Investors would rely on the accuracy of financials only based on the audit report.
Now that you know how important it is to get regular audits conducted, you should make sure you get your small business audited. After all, audits can help you to understand where your business is headed and how finances are being managed.