If you are a startup or a growing small/medium-sized business, you must know what an audit is and why your business needs it. There are different types of audits with very specific purposes. Read on to know Why Financial Auditing is necessary for Startups/SMEs.
You might be wondering why I should know about financial auditing. Well, your company might be getting an audit done every year, but you do not know what the actual use of it is. Or you are running a business and not getting an audit done. So, here’s why financial auditing is necessary for startups/SMEs.
Audits of financial statements reflect the accuracy of the financial position of your company. While it is mandatory for large and public companies to get their financial statements audited, the same rule does not apply to small or middle-sized companies. Although, SMEs can willingly get their finances audited for their own benefit.
Advantages of Financial Auditing for Startups/SMEs
Here are some reasons why financial auditing is necessary for startups/SMEs:
1. Accurate Financials
Your company might not have a huge team of professional accountants who are making sure that your financial statements are accurate. It becomes incredibly useful when an auditor comes in to verify your financial statements. After an audit is done, your financial statements will become accurate and also comply with International Financial Reporting Standards and can be used to compare financial data from year to year in the most definitive manner.
Even if your company has an accounting team, it is always best to have an expert come and verify the accuracy of your financial statements.
2. Better for Decision Making
Once your financial statements are verified and correct, the management of your company can analyze them to make better decisions in the future. If the financial statements are not done correctly or verified, certain business decisions can be disastrous and can have a negative impact on the company’s performance.
3. Reduce the Risk of Fraud
When an external auditor comes in to review your internal systems controls and procedures, they will be able to advise about the weaknesses of your company’s internal systems controls and procedures. Correcting these weaknesses will help reduce the chances of fraud. You can find a lot of cases where frauds were not discovered because a proper audit was not conducted. Even though auditing does not guarantee that there will be no fraud, it certainly reduces the odds of it happening.
Most importantly, doing an audit ensures that all the stakeholders (investors, owners, lenders, etc) of your company trust the financials being shared by the accounts team or manager. This is especially true in the case of multiple partners in a company, and one among them is the active partner and manager who runs the business and has to report to the rest.
To build and maintain trust between partners, you must always get an audit done. This way, all the partners relying on the financial statements are on the same page as the others, and will not have to feel that they are being given false reports.
5. To Get a Bank Loan Approved or When Looking for an Exit[MOU1]
If you approach the bank for a loan or any other facility, the bank most probably will ask you for an audit report, to understand the financial health of your company. If you are planning on an exit, having a proper audit conducted every year will help you increase your bargaining power. [MOU2]
6. Trusted Advisors
Your auditors are your trusted business advisors. It might not just be in the scope of the audit work, it can also be to provide advice. Most of the small and medium-sized audit firms will be more than happy to provide you with advice and assist you in your business. You can take full advantage of their experience and financial expertise.
7. Legal and Tax Compliances
You may be required to audit your company due to some legal or tax compliances in UAE. As per the business law in UAE, it is mandatory for all mainland companies to complete an audit. However, it is not necessary to submit audit reports to any government authorities. This will most probably change in the future, with the additional compliances, and implementation of corporate tax and tax systems maturing.
A&A Associate is one of the best business setup consultants in Dubai. We are a Dubai-based firm of lawyers, consultants, and chartered accountants. We have a professional team with strong expertise in increasing the trustworthiness of the financial statements prepared by clients for use by creditors, investors, and other stakeholders.
Contact A&A Associate for any queries or concerns. Take advantage of our audit services today!