Understanding the Importance of Statutory Audits

Due to the increases in the audit exemption thresholds over the years, many companies may not have had a
statutory audit for some time, if ever. However, it may be worth considering whether an audit would be of
benefit to your business.

The process can provide valuable feedback on the effectiveness of your company’s internal controls and processes, and can also offer a useful external perspective of the business. Audited financial statements can enhance confidence in your business if you intend looking for finance or new investors in the future.

If your company is appointing an auditor for the first time, here are some pointers that company directors should consider

Define your needs

Consider why the company is appointing an auditor. Is there a legal requirement to have an audit (many companies are audit-exempt, so do not legally require an audit) or have the shareholders requested an audit?

Research the market

Many large companies will put their audit out to tender. Such a formal process may not suit smaller firms, so it may be more appropriate to meet a number of prospective auditors to discuss your company’s requirements. Meeting with prospective auditors is a useful way to gauge their working and communication style.

Appoint the auditor

The directors usually appoint the first auditor; they are then appointed or reappointed at each AGM. The Companies Registration Office maintains a register of all those individuals and firms that are appropriately qualified to provide statutory audit services.

Preparing for the audit

To ensure that the audit process is as efficient and effective as possible, you should engage as early as possible with the auditor to agree a timeline and prepare the relevant records. The auditor may be able to assist you with these final preparations, although there are limits, due to independence rules, as to what the auditor can do.

The auditor will generally arrange a planning meeting. An engagement letter will issue, which sets out the respective responsibilities of the auditor and the director. This should be reviewed carefully. Ask the auditor to explain any terminology that you are not familiar with.

Final report

A final statutory audit report setting out the auditor’s opinion will issue to the members of the company. The key findings and shortcomings noted in the company’s internal controls and processes will be outlined, providing you with insight into the business and a deeper understanding of the potential risks you may be exposed to.

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