3 Reasons Why A Financial Audit Is Crucial For Your Business

Conducting a financial audit may seem intimidating at first but fear not! It can be accomplished with ease if you understand the importance of a financial audit and how it can help your business thrive in the long run. There are many different reasons as to why a financial audit can be helpful to a business but in this article, we will explore the three reasons why conducting an audit is important to sustain a business and how it can be helpful in the long run.

What is an audit?

Before exploring the different reasons why a financial audit is important for a business, we must first understand what exactly is an audit?

With reference to the Oxford Dictionary, an audit is an official inspection of an organisation’s accounts, typically by an independent body such as an audit firm. It is also to conduct an inspection on the financial statements and records of a company to ensure that there is no shady activity occurring within the organisation or business in particular.

When is an audit not necessary for a business?

In Singapore, the law states that most companies do have to go through statutory audits and it is a requirement. A company also has to be incorporated before it can go through statutory audits in Singapore. However, there are some cases whereby companies do not have to go through statutory audits such as the following:

• Companies that qualify as small companies.
• A company is considered to be a small company if it meets two out of three of the following criteria:
  • A total asset value of less than $10 million or less,
  • Total annual revenue of $10 million or less, and
  • Number of full-time employees at the end of the financial year must not exceed 50.

If a company in Singapore meets the criteria listed above, they are not obliged to go through statutory audits and can be exempted. Any other companies that do not meet the criteria listed above are required to have statutory audits and are required to go through the auditing process, typically done by an audit firm or independent body.

Why is a financial audit crucial?

Running an audit comes with numerous benefits for businesses. Circling back to the main question of why an audit is crucial for a business, it allows the business to be inspected through their financial records to find out and identify if there are any dubious methods of business that may be occurring in the company through the back end. Some of the main reasons why an audit is crucial are as follows.

1. An audit provides credibility to a company’s financial records. As an audit is carried out on the financial statements of a company, shareholders will be able to find out if the company are tallying their financial statements and that nothing seems amiss in terms of the business financially. It can also prevent misstatements of facts presented.

2. It ensures that no decisions made by the company were biased. An audit can help to check if the decisions that were made by the company were not biased to the management or any other circumstance. It also prevents any unethical situations from surfacing as the auditor is carrying out the audit is typically done from an independent body and not within the company itself.

3. It also provides reasonable assurance that the financial records are complete with information. By going through the auditing process, it provides reasonable assurance that the records tally with whatever the financial statements are supposed to show. There are certain cases whereby companies tend to not complete the reports with sufficient information and conducting an audit can help to ensure that the information is not missing and that everything is presented in the reports.

Conclusion

To summarise, conducting an audit may not be necessary to some but it is crucial to most businesses. An audit can aid in making sure that a company is tallying its reports with whatever is present and it ensures that the financial statements are dependable and accurate. Audit firms in Singapore such as us here at OneStop Professional Services provide various services including company secretary services and even nominee director services in Singapore. Don’t hesitate to get in touch with us to find out more about the different services we have to offer for all your corporate needs.