To help monitor and reliably measure the financial situation of a company, conducting a regulatory statutory audit is vital. When a business provides an audit to stakeholders in a fair and true manner, it proves to them that their company has adopted the appropriate accounting methods needed.

Depending on the nature, complexity, and scale of your business, statutory audits can take many different forms. In some cases, one may be considered more appropriate than the other. Take, for example, a small retail company: the audit most likely will focus on stock valuation, cash receipts, and margins due to the nature of it and the type of products that are sold. On the other hand, an audit of a large property investment company will most likely focus on property valuation, systems, and funding, since these are more relevant to the type of services that are provided.

Before potential investors make an investment decision, an audit report it helps provide them with the reassurance and transparency they need with regards to your financial situation.

With this said, there are many benefits of supplying investors with an audit report. Some include:

  • Compliance — for business owners, shareholders, and potential investors, conforming to an audit process is one way to show investors that a company is credible and transparent. Building a high level of trust with those interested in making an investment is key.
  • The credibility given to financial statements — the main purpose of an audit is to verify that the financial statements are true and fair, thus helping assure the investor they are aware of what they are investing in.
  • Improves planning, budgeting, and forecasting — since statutory audits give credibility to historic numbers, this information can be used to forecast ahead and ultimately limit the potential financial risks a business might face.

When an investment decision is being made, any investor will know that transparency is key. Having comfort that the financial statements have been audited increases the confidence that investors have.

Speaking more on the importance of this, Andrew Millet from Wisteria Accountants commented that: “Any company that is seeking investment over the next few years should be thinking of voluntarily having themselves audited. Leaving it until the year of investment is often too late”.

What could not providing an audit mean for potential investors?

In short, not having an audit could present your business in a poor and unprofessional light. Since audits provide clarity, transparency, and honesty about your business’s financial situation, not having one could imply you have something to hide.

It’s simple — investors will want to know what type of business they are investing in. As previously discussed, audits improve the planning, budgeting, and forecasting of a business. Therefore, not having one could imply a lack of organisation and financial planning is present in your business. If there is no audit, or for example, no cash flow history provided, it will make investors lack the trust needed to confirm their investment.

For businesses in the development or start-up stages, it is vital that you prove to investors the legitimacy and professionality of your business in order to succeed.

Investors and emerging businesses: the importance for them

As previously discussed, to encourage investors, early-stage businesses will need to do everything they can to seek the growth funds they need.An interesting business model, a credible management team, a good trading history, and robust systems will all help to promote a strong story. A statutory audit will further enhance an investor’s opinion on the target company and demonstrate that the management is transparent, thorough, willing to be open to scrutiny, and operate with a heightened level of integrity.

It is common for businesses in the early stages to get carried away with products and sales. While it is important that they do this, they must also keep an eye on processes, systems, accounting, reporting, small business tax, and compliance.  A statutory audit will help companies achieve this.  Investors love a great idea, but ultimately, they need comfort that the management team are reliable, organised, and compliant. An audit will help substantiate this.

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