Does your company need an audit service?
We recently conducted a brainstorming session whereby we wanted to explore the reasons why companies would need an audit. Ideas were gushing out of everyone in the team and within these, we stumbled upon a gem. We all agreed that an audit to a company is not that dissimilar to regular servicing of a car.
Some car owners delay the necessary service of their cars for various reasons. The main reason is lack of love and passion for the car. In such instances of abandonment, the car eventually develops minor problems which go unchecked for a long period of time. This usually becomes a problem to the owner when they are driving in busy Melbourne traffic and suddenly a light comes on their dashboard or the car starts making abnormal noises. Sometimes, this can be too late and the damage caused to the car can be irreversible.
A business is not that different. Businesses require regular checks by an independent person who is not involved in the everyday operations and can be in a position to objectively view the business from a different angle. Some of the most common and easy to fix financial issues can be overlooked by the business owners which can easily be identified by an independent advisor. There is no better independent advisor to identify such issues than an auditor.
It is common knowledge that most business owners perceive audit as unnecessary as extracting a perfectly good tooth. This perception has been built on decades of stigmatisation of auditors as interrogators rather than advisors. While auditor’s need to remain independent as prescribed by the Auditing and Ethical Standards, they are not restricted to provide insightful advice on process improvement. Advice which can improve processes which may be cumbersome, old-fashioned, risky, ineffective or unnecessary.
Some of the areas of advice that auditors should be able to provide within a statutory external audit include:
- Cashflow management
- Assessment of debt collection and debtor days
- Identification of excessive interest rates on debts and assistance with refinancing and inadequate interest rates earned on deposits
- Recognition of potential risks of misappropriation of funds due to weak internal controls
- Business succession and risks of inadequate plans in place
- Short creditor payment cycles which cause constraints on the cashflow
In addition to the above, the presence of auditors on a business premise creates greater awareness within finance staff potentially leading to greater accountability and a more efficient work environment.