James Ellul, Audit Partner, NOUV
The thought of an audit triggers a sense of anticipation if not concern in a business owner, the management team and possibly staff. Yet, an increasing number of entrepreneurs are recognising the utility and benefit of such process being held on a regular basis in their efforts to push their business venture towards further success.
Up to a few years ago, auditing firms were associated with financial audit, but in today’s world, the services offered to companies are wide-ranging and significant. This has completely transformed the opportunities for business owners, particularly small and medium entrepreneurs, who have at their disposal the right tools to deliver an unprecedented level of growth.
While entities which are regulated by specific authorities, such as gaming and financial services, would generally require an external audit by the applicable regulations, why is ultimately such a process beneficial to the companies seeking to undertake it? Although the most basic scope of a financial audit is the verification that a business’ house is in order, financial consultancy constitutes a mission-critical element of a business.
Board members and management are given an independent and honest review of financial statements determining if the business is achieving its financial goals and whether it is on the right direction to continue doing so. Auditors take an in-depth review of core business elements such as cash management procedures, balance accounts, accounting controls and relationships with creditors.
Regular financial audits provide reliability to a firm’s statements and inspire assurance in its shareholders, that the business is moving ahead as planned. Such audits would significantly come in handy if the entity is planning a venture on the stock market, through an IPO, whether on the main markets or through alternative solutions, such as prospects, available locally.
It is also helpful if planning for sale, with an audit enhancing credibility and reliability of the figures being submitted to prospective purchasers, hastening due diligence procedures. It also adds credibility when seeking other forms of financing, such as bank loans for longer-term financing or else through public funding, especially through the stringent procedures of European Union funding – with the latter becoming an important, but challenging way to procure financing for growth, research and innovation.
While obviously such elements are core to a company’s operation, today there is a bigger appreciation that risks which threaten a company’s ability to meet its target or achieve its financial goals are not merely financial. Such risks emanate from a variety of sources, internal or external. This could include poor management, fraud, IT and security breaches to immediate, unexpected changes to the country or world economy.
Put simply, risks are inherent to every environment and business. It is not something which we can eliminate, but at least, we can plan for them and eventually address them head-on to minimise their impact.
The first step in risk management is to identify the risks in order to come up with a risk management strategy. In this context, in recent years, many larger companies have added risk management departments to their team. Such teams support the process of identifying risks, coming up with strategies to guard against these risks, executing the same strategies and supporting all members of the company to cooperate towards the same goal.
Naturally, not all businesses afford a fully-fledged risk team. It is here where audit companies can offer value added to their clients. A management audit detects problems which entrepreneurs or their managers might very easily miss, not through dereliction of duty but rather as natural consequence of being so immersed on the day-to-day operations that the bigger picture is not considered. After identifying all possible risks associated with the business, the auditing firm can design plans to improve a company’s approach, its systems and therefore significantly reduce the risk it will face.
Entrepreneurs put so much into their business ventures – money, time, commitment. Unfortunately, at times, it is the little things which determine the success or failure of a company. While internal politics may at times hinder the growth within an organisation, an external auditor works with the specific purpose of improving the business – and this is the biggest value added that audit consultancy can bring to the table.
James Ellul is a Certified Public Accountant and Practicing Auditor with over 10 years’ experience in accounting, management and audit roles