11. Seven Things You Need to Know About Audits

We’ve created this article to help you relax and arm you with evidence to calm your worries about the auditing process.

Here’s the knowhow we think you need about the auditing process:

1. Auditing means things are going to get checked over

Simply put, an audit is the authorities checking over your financial information. This can be your accountant checking over your accounts for you and making sure everything would make sense to HMRC

2. Any company can be instigated for audit by HMRC

Whilst there are situations that businesses need to be audited (such as when your sales are greater than £6.5m per year) any business can be selected for an audit.

3. Auditing is generally split into two types

For example, you have audits that are required under the Act of Parliament and there are a number of other audits (explained below).

4. Voluntary audits

You can volunteer to audit your accounts. You don’t have to wait for this to be triggered by business income milestones.

5. Investment audits

If you are in a situation where you have secured an investment into your business, part of your agreement is likely to ask for a statutory audit.

6. Grant audits from grant funders

This is mostly done to check that the money that has been granted by a central power has been spent on the project that had earned the grant in the first place.

Auditing is the best way to guarantee that the money has been spent as expected.

7. Audits by HMRC

This is what most people will mean by an audit.

Here is what is likely to happen during this:

Take a look at your accounting system

Check whether that system operates as described

Investigate accounting transactions

Examine printed accounts you have and see if they match your records

See if your accounts disclosed everything, they should do

As you may expect, the auditing process is done to give confidence to investors or HMRC that your business’s accounts match up with how it is being declared via your accountants.

A lot of businesses will be audited by a process known as ‘sampling’. As you can imagine, trying to check every single transaction in and out of a company turning over £2m per year would take a very long time.

Sampling means that only some of the big items from your inventory will be checked.