As an audit firm priding ourselves on our “Brighter Thinking” approach, we at Menzies LLP would love to believe that every finance team looks forward to their annual audit, welcoming us and our questions with open arms. As inhabitants of the real world, we realise that’s not always the case. Audits can feel expensive, time-consuming, pulling focus from the running of your day-to-day finance function, and at times it may seem unclear what your auditors are actually doing with the information you and your team have been working so hard to provide.
For many, a statutory audit is mandated by the Companies Act. Others might choose to have a “voluntary” audit to satisfy other stakeholder requirements. Perhaps you fall into one of these categories, or perhaps you are preparing for your first audit and wondering what to expect. Whatever their reason for appointing an auditor, we are proud to provide this service to a diverse range of clients and believe the process can add real value for investors, management, employees and other stakeholders. We’ve explained why below:
Value Added
| Enhance your credibility in the market | Aid strategic planning |
| Whilst some entities are required by law to appoint a statutory auditor due to their size or structure, voluntary audits are a popular choice amongst entities whose management have a growth mindset and ambitions to attract external investment. Investors, key customers, top talent and other stakeholders may require an entity to be externally audited, in order to improve their confidence in the financial reporting and governance of a company before making important contractual decisions. Statutory auditors adhere to the same set of standards whether they are reporting on small, medium or large entities, with their risk-based approach ensuring that the procedures performed are proportionate to your company’s circumstances. As part of their work, they will challenge you on key judgements and assumptions that you might be making in the preparation of your financial statements, providing a healthy sounding board for you and your team to consider whether or not the status quo remains appropriate. If a full statutory audit isn’t the right choice for your small business, it may be worth considering a limited assurance review, which provides a lower level of assurance than a full statutory audit and can be tailored to specific areas of interest, allowing companies to control costs and focus on stakeholders’ key concerns. Such a review may focus on a specific financial statement area, or include targeted procedures on material areas. | When a business is performing well and all stakeholders are clear on strategy, an audit can be the perfect opportunity for an annual health check to ensure the systems and processes in place remain fit for purpose as the entity grows. On the other hand, if something doesn’t look quite right with the financials, your auditor has likely invested more than any other external partner to understand how your business and others like it work, and is therefore well placed to work with you to interpret and address this. Auditors are trained to spot trends and identify discrepancies which may be an indication that something needs to change, in order to meet the evolving needs of a company. For SMEs on a growth journey, the appropriate size and structure of finance and leadership teams can change significantly within the space of just a few years, resulting in “growing pains” where the structure may not be in place to identify and anticipate future risks. This is where auditor recommendations can help ensure the business is primed to take advantage of opportunities as they arise. Whether you are an owner-manager thinking about succession planning or the CFO of a private equity funded group seeking further investment, the annual audit provides an opportunity to make incremental improvements and address emerging risks as part of your routine financial reporting cycle. Whilst an audit is performed to a level of materiality and will not detect all potential misstatements, it is likely that all parties will enter into any future Due Diligence discussions with enhanced confidence knowing that a rigorous annual audit process has taken place in the years ahead of a potential transaction. |
How we do it
| Risk assessment | IT controls | Practical recommendations |
| Your auditor will undertake a holistic risk-based review of your business. This will include not only examining financial results, but a drill down into systems and processes, including relevant financial and IT controls, legal, regulatory and operating risks. Any successful business will be monitoring and mitigating identified risks already, and an external perspective from a team experienced in assessing risk and testing solutions to these can provide an independent and objective on your team’s work in this important area. If you are a business owner with ambitions to sell or pass on your business, you will be acutely aware that the value of a company is driven by profitability, growth and risk level. Your auditor will highlight areas of potential risk and to make recommendations accordingly. This gives businesses the opportunity to gain a head start on addressing issues before they become a problem for the management team. | At Menzies, we have invested in bringing IT specialists into our audit team. Financial systems and the reliability of reporting are increasingly reliant on software. As a business leader, you need to be able to count on your IT systems operating effectively and the integrity of its users. In response to this, your auditor will seek to understand the IT applications, systems and controls relevant to the financial reporting cycle, test that they have been designed appropriately and implemented and report to you on any potential weaknesses. | Through their work, your audit team benefit from a unique insight into not only your business operations, but many other comparable businesses. In addition to this, a Menzies audit team will typically include sector specialists, along with access to a breadth of technical specialisms. This means that a good auditor will not simply report on risk areas and potential problems they have identified within your financial systems – they will also be well placed to make proactive recommendations as to how these may be addressed. Whilst it is management’s responsibility to implement and maintain appropriate controls throughout the financial reporting cycle, insights from your audit team can be invaluable in assessing the effectiveness of processes implemented and commenting on the potential financial implications of any weaknesses identified. |
So next time you’re invited to a kick-off meeting or find yourself explaining again why that meeting room has to be booked out all week for the fieldwork, we hope that the factors above, together with a friendly and collaborative approach from your audit team, will help with framing the audit process as an essential project to add value and reduce risk. If your looking for an auditor at delivers this additional value, why not contact us to learn more about our Brighter Thinking approach to audit?
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