To audit, or not to audit – that is the question...
With apologies to William Shakespeare, this is a question that we encourage all business owners to consider.
An audit used to be an annual process that all companies went through. Since 2008, most Guernsey companies have the option of becoming “audit exempt”. However, there are still many situations where a voluntary audit, or some other formal review of financial statements and systems, can be beneficial.
Many clients will simply ask us to prepare their (or their company’s) financial statements. This is the lowest cost option, but is it the most appropriate? It is important to think about the benefits of the alternatives, in light of changes in your business’ circumstances.
Collenette Jones can offer a wide range of services, tailored to your needs. Some of the options available are set out below, but please get in touch to discuss what is most appropriate for you.
Financial Statements Preparation
Our work ensures that your financial statements agree with your accounting records and include the necessary disclosures. There is no requirement for us to investigate your records in detail, although we will of course raise with you any points that come to our attention
We append a short report to confirm that the financial statements have been prepared by a professional accountant, but do not express an opinion on them – if you operate a Limited Company, the Tax Office usually insist you have at least this level of professional involvement.
This is the lowest cost option available, and for many small business owners is also the most suitable. However, it is important to consider alternatives in light of changes in your circumstances – particularly if your business is growing, you expect to need new bank borrowings, or you are hoping to arrange a sale of the business in the medium term.
An assurance review is designed to be more in-depth than simple financial statements preparation, but less intensive, more flexible – and less costly – than a full audit.
The work we do is focussed on the figures in your financial statements as we do not have to comply with internationally recognised auditing standards and the mandatory documentation and procedures associated with them. Examples of procedures we could complete are a comparison of results to previous years, to budgets and to forecasts (if they are prepared) and ensure we fully understand significant movements. You can ask us to do more work, if there are particular areas that you would like to be reviewed – for example, the treatment of unusual costs, or significant areas of judgement.
There are instances where an investor or lender likes to see a higher level of professional involvement in the year-end process than simple financial statements preparation, and will accept an assurance review as a cost-effective alternative to an audit.
This is the most in-depth review you can ask us to carry out, as we collect evidence that allows us to formally state that the financial statements give a “true and fair” view of your business’ financial statements. Our work is guided by internationally recognised auditing standards, and focuses on all areas of your business – your systems, processes and controls as well as your figures.
An audit will provide external parties, such as key customers or suppliers, banks or other lenders, or a prospective purchaser, with confidence that your business has been subject to a thorough review by an independent professional.
If you are not actively involved in managing your business an annual audit may also give you comfort that it is being properly run by your appointed directors, and that they have complied with rules, regulations and accounting standards.
The costs involved in carrying out a fully compliant audit do mean that it is not the most appropriate solution for all businesses but then again it does give a higher level of comfort over a business’ financial statements than any other option noted above.
For some companies, regulations (such as those issued by the GFSC) may require you to have an audit, irrespective of the size of your business or other considerations.
Agreed Upon Procedures
There may be times when you need a professional accountant to review a particular aspect of your business, and provide a report to you on matters other than your annual financial statements.
An agreed-upon-procedures engagement allows you to guide our work, and set out specifically those items you wish us to review and report to you on. We provide findings of fact, which, depending on the type of work being undertaken, can assist you in forming educated conclusions.
We work with a huge range of businesses, and pride ourselves in our close working relationships with our clients. We can draw on these experiences to provide advice on areas including (but certainly not limited to):
- the appropriateness and effectiveness of your systems and controls;
- review of compliance with policies and procedures;
- the selection and implementation of accounting policies;
- due diligence on acquisition of a new business venture; and
- the most effective way to structure your investment in your business.
It is easy to overlook the importance of year-end accounting, and ensuring that the work you ask you accountant to do is appropriate to the needs of you and your business. If you would like to discuss the options available, and what is best for your business, please feel free to contact me or any of our Directors.
Colin Jeffreys ACCA
15 May 2014
This article has been prepared as a general guide. It is not a substitute for professional advice. Neither Collenette Jones Limited nor its directors or employees accept any responsibility for loss or damage incurred as a result of acting or refraining to act upon anything contained in or omitted from this document.