Financial audits are a necessary and compulsory practice for most businesses to ensure that their financial records are up to date and are compliant with standard accounting practices. Although it may seem an invasive process, financial audits can actually protect your business from fraudulent activity and will ensure your financial records are credible to external stakeholders. Financial audits are performed by independent third parties that have no invested interests in your business. Their position is simply to advise on the financial standing of your company.
What are the requirements for being financially audited?
All public and state-owned companies must be audited including companies with a public interest score of 100 but less than 350 with annual financial statements that have been collated internally for the year.
When it must be done
It is crucial to remember that financial audits /reviews must be done within 6 months from the end date of the company’s financial year according to the Companies Act (No71 of 2008 section30).
Under this act, small to medium businesses can choose to be independently reviewed by registered Accountants who are part of the International Federation of Accountants rather than audited which is a cheaper and less cumbersome process than the traditional auditing route. This does not apply to public companies however who are still compelled to undergo regular financial audits.
Failure to do an audit/review within this time can result in serious ramifications. To avoid this from occurring, you can plan ahead to ensure that your documentation is ready to be reviewed/ audited with time to spare.
- Before an audit can be done all previous accounts must be reconciled, closed, and accompanied with supporting proof for the closure of major accounts.
- All the necessary documents should be compiled and prepared for the accountant in advance for when he/ she arrives. It’s also helpful to designate and prepare a comfortable space for him/ her to work in.
Financial audits don’t have to be a stressful event if planned for properly. If you have any questions or need assistance with your financial auditing planning, contact us today for expert financial and accounting advice.