What is an Audit?

James Hadfield

James Hadfield – Audit Partner

An audit is defined as an official inspection of an organisation’s accounts, typically by an independent body. Many companies within the UK are likely to require an audit, but are unsure what an audit is and when is it needed.

So when does an entity require an audit?

A company is legally required to have an audit if they breach two of the following thresholds:

  • Turnover greater than £10.2m;
  • Total assets greater than £5.1m; or
  • Greater than 50 employees.

Even if a company is below these thresholds it will be required to have an audit if it is part of a group which breaches certain size thresholds. Additionally, sometimes the company’s articles or the shareholders will require an audit. Therefore, even small companies can be required to have an audit.

The objective of an audit

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The objective of an audit is to form an independent opinion on the financial statements of the audited entity. The opinion includes whether the financial statements show a true and fair view, and have been properly prepared in accordance with accounting standards.

A misconception is that auditors are required to identify all misstatements. However, they are responsible for identifying material misstatements, not all misstatements.

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    What does an audit involve?

    An audit must be performed by a registered auditor and must comply with certain standards. It involves performing procedures on the numbers disclosed in the financial statements. These procedures are designed to identify material misstatements and regularly involve testing a sample of transactions and balances.

    Additionally, the auditor performs a detailed review of the financial statements, including disclosures, to check they comply with accounting standards and company law.

    After all the work has been completed the audit opinion is communicated in a standard report which is included in the financial statements of the audited entity. Any weaknesses the auditor has identified in internal controls will also be communicated to management.

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    More about Menzies audit and compliance services

    As well as meeting your statutory reporting obligations, Menzies’ audit and compliance services are the proactive way to reduce risk and drive forward your business strategy. Our pragmatic, hands-on approach helps you improve your business performance – by challenging assumptions and resolving commercial issues that could be holding your business back.

    Our audit and compliance team will help you to:

    • Add value to your business by using the audit as a basis to identify and resolve commercial issues and to improve your business processes.
    • Use the understanding and insight gained from the audit as a basis for helping you develop strategies to drive your business forward.
    • Reduce risk and improve your organisational performance by challenging existing assumptions and practices.
    • Secure peace of mind from knowing your statutory obligations are met, accounts are true and potential problems have been identified early on.

    Contact Menzies Audit & Compliance team

    To speak to a partner or for more information about the audit and compliance services we offer please contact one of the Menzies LLP offices or complete our contact from below.