Why Small Businesses Need Financial Audits

Monday, 11 Oct 2021

Small business owners often consider auditing to be an expensive and redundant pursuit. Many believe that it is required by those who fall in the regulatory requirements category or those who own very large businesses. However, these are misconceptions that bookkeepers in Melbourne help to resolve.

Financial audits are essential for assessing the accuracy of the financial reports and their compliance with the accounting principles and tax obligations. Bookkeepers often recommend getting internal and external audits conducted because they help to determine the financial management and standing of the business.

An audit is helpful in analysing the performance of the venture, identifying inaccuracies, frauds, tax discrepancies and areas of business that need enhancement. So, let us understand the significance of financial audits for small businesses in detail.

Businesses That Need Financial Audit

If you are not aware of the fact, your bookkeeper will apprise you about the regulatory requirements related to audits in Melbourne. All large proprietary companies have to conduct them to comply with the obligations.

As per the Australian Securities and Investment Commission (ASIC), entities that generate total revenue of more than $50 million or have gross assets worth $25 million and above or more than 100 employees have to conduct audits. However, this does not imply that small businesses do not need them.

Bookkeepers make it a point to carry out annual financial audits to maintain consistency and error-free reporting. Small businesses in Melbourne do not have to follow any protocols for audits.

However, it is recommended that they must conduct internal audits at frequent intervals (every six months) to make sure the reports are correct and up to date. In case the ATO finds any errors or misrepresentations in the reports lodged by the business, it can conduct an audit itself to check the financial performance of the venture.

They use advanced software to identify inconsistencies by matching the data provided by the business with the data accumulated from banks, suppliers, and government agencies. Thus, small businesses rely on bookkeepers to make sure such a situation does not arise, and they work transparently.

Advantages of Financial Audits for Small Businesses

Here are the top reasons that make conducting an audit an essential part of financial management for a small business in Melbourne.

1. Securing Government Grants

Many small businesses and charities plan to get a government grant to grow their entities. However, the government will not offer the investment amount until it is confident that the financial statement provided by the business or charity is accurate. Thus, it becomes imperative to get an external audit conducted for the venture to improve the credibility of the financial data submitted to the government.

2. Applying for a Business Loan

Moneylenders and banks in Melbourne need to be sure about the financial health of the business before offering them a loan. Thus, every small business looking for funding from a financial institution or investors should get an audit done to present trustworthy data and credit reports to them.

It is a means for the lenders to safeguard their interests and ensure that they are not lending the amount to a financially struggling entity that may not be able to repay the loan.

3. Recognising Frauds

The bookkeeper helps in conducting internal audits to ensure that the day-to-day operations are running efficiently. They track the financial reports to find out any deceitful transactions made by the employees or suppliers. It is also helpful in understanding the weak areas of the business that can hamper its progress.

Thus, a financial audit is required to keep the business performing well and avoid any financial loss due to a devious scheme initiated by a fraudster. It helps in making the business more profitable by reducing errors in financial data.

4. Assurance to Shareholders

If the small business in Melbourne has shareholders, they will be keen on tracking the financial reports of the entity. It will help them to know how the business is progressing and which areas need improvement.

It gives them the satisfaction that their investment is safe, and they are not losing money through the venture. It is equally important if the business is planning to transform into a partnership or LLC.

5. Selling Your Business

Many small business owners consider selling their ventures due to a variety of reasons, such as early retirement, moving to another country, health issues, etc. It is a given that the potential buyers will conduct due diligence before purchasing, and this requires audited financial statements. Bookkeepers provide audited reports to add value to the business and make it more appealing to prospective buyers.

6. Maintaining Compliance

Audits are also immensely helpful in making sure that the small business is complying with the regulatory obligations in Melbourne. Bookkeepers utilise internal audits to ensure that the financial reporting and recording is taking place according to the rules and laws of the state.

Thus, audits help in optimising all the processes and boosting efficiency by following the best accounting practices and tax planning performed by the bookkeeper.

Endnote

A financial audit is highly significant for small businesses as bookkeepers in Melbourne use it to ascertain the risks associated with the business, utilisation of capital and efficient reporting and tax planning. Thus, entrepreneurs should not ignore this vital task and make it a part of their accounting responsibilities.

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