Auditors review a business’s books for accuracy of recording, filings, and reporting. A good audit will uncover errors, fraud or misrepresentation. Auditors are Chartered Accountants who must be registered with the Independent Regulatory Board for Auditors (IRBA).
Reasons for Having an Audit
1. Legal Requirements.
Sole proprietorships have minimal legal requirements, but close corporations are obliged to keep books and to produce financial statements. These must be checked by an accounting officer who is registered with a professional body.
The Companies Act, however, requires all companies to have their financial statements audited annually. The financial statements are prepared by directors and the auditors must state whether or not, in their opinion, they fairly present the company’s financial position and results. The auditors’ responsibility is to the shareholders.
2. The Credibility of Financial Statements.
Without credible financial information, decision-making by directors, investors and finance providers is difficult and risky.
3. Taxation Issues.
The audit process unearths adjustments and opportunities that are significant for Income Tax, Value Added Tax and Capital Gains Tax planning purposes.
4. Banking Requirements.
Many enterprises, including close corporations, partnerships and sole proprietorships are bound by their banks to have their financial statements audited, regardless of the statutory requirements.
5. Advice on Systems.
Part of auditors’ routine work involves the assessment of accounting and internal control systems. Auditors often report on structural and operational weaknesses and make recommendations for improvement.
6. Good Corporate Governance.
A good reputation is important for businesses of all sizes and investment in an audit is recognised as an essential element of good corporate governance in South Africa and internationally.
Why should businesses other than companies invest in an audit?
- The cost of the audit is marginal for very small enterprises, particularly where the auditor is involved in the preparation of the financial statements.
- Adjustments arising from the audit can be significant for enterprises that prepare their own financial statements, greatly increasing their accuracy and value.
- An audit is essential in take-over, buy-out and financing negotiations.
- The close involvement of the auditor provides enterprises with comfort when faced with regulatory investigations.
- The powers and resources of the South African Revenue Service and the regulatory authorities are increasing; it makes sense, therefore, to have an audit done to ensure that the enterprise is complying with increasingly complex legislation.
An audit need not be stressful if the business is well-prepared. Keep accurate records and make sure the day-to-day bookkeeping is up-to-date. Store accounting records in electronic format so that historic information is always available for the auditors. It’s also a good idea to do regular internal audits as these will highlight any problem areas in the accounting process. Ensure that all taxable income is declared and that the business does not avoid paying any taxes.