Business risk under the microscope: How can an audit help?

The last few years have been nothing short of manic.

While inflation persists and interest rates keep on rising, coinciding with the ripple effect of the Mini Budget and Covid, businesses need to hone in on risk.

Changes in the auditing landscape provide a timely reminder that an audit can offer real value in helping businesses manage the risks, and opportunities, posed by the current climate. Looking at your business at micro level can not only help you identify risk but helps you to get to know your business better.

And with renewed responsibility on each individual auditor, businesses could get more out of the process than ever before.

A changing landscape: Is an audit more valuable now than ever before?

It’s fair to say that the audit profession has been challenged over the last few years. One response has been the revision of International Standards on Auditing 315 Identifying and Assessing the Risks of Material Misstatement (“ISA 315”), in order to focus efforts on risk assessment and ensure a better understanding of the environment in which the client operates.

The revised ISA applies to all audits, whether you are large or small, or a corporate or charitable company, but crucially is proportionate and scalable. So when it comes to your individual organisation, you’ll be receiving a much more bespoke and tailored audit approach which really focuses on the key risks that you face as a business. This change, in many ways, offers a fresh pair of eyes as it results in the auditor revisiting processes, controls and the wider environment in which a business operated. Although this is the approach we’ve always adopted at Haines Watts, the change in auditing standards provides an opportunity to refine this even more and really focus in on your key business risks and opportunities.

So, with new legislation holding auditors to a higher degree of responsibility than ever before, how can the process help your organisation manage the current economic environment.

Strengthening your controls

The revised ISA also means that your auditor has a greater responsibility to understand your controls and processes. There is also now specific mention of IT controls, reflecting the ever-increasing importance of IT in the day-to-day running of a business.

Drawing upon their knowledge of your specific sector and a detailed understanding of your own business, your auditor should be honing in on how effectively your controls are designed and implemented, whilst also identifying weaknesses and gaps measured against best practice.

So, at the end of your audit, you will be receiving a really insightful report that fully evaluates your controls, policies, procedures and systems. These insights may help you improve the operational efficiency and governance of your business, whilst minimising the likelihood of fraud, errors or mismanagement.

Staying ahead of the game

In today’s fast-paced and ever-evolving world, those who don’t stay ahead of the game run the risk of falling behind.

ISA 315 and the need to fully understand all aspects of your organisation mean an auditor will look beyond financials and may drill down into the operational, compliance, and personal performance evaluation aspects of a business to make sure you fully understand everything that makes your business “tick”. This can provide insights into efficiencies, areas for improvement, best practices and potentially identify risks in the organisation that haven’t yet been identified.

Recommendations that your auditor makes can help to guide your team towards better practices, increased productivity, and overall business optimisation. This will go a long way in helping to stand your business in good stead for the future.

Focusing in on compliance and irregularities

The rules and regulations of the business landscape are ever-changing. And when mixing these intricacies with the day-to-day running of your business, it can sometimes feel hard to keep up.

It is likely that an audit will make you see things a different way to the way you do currently. Auditors will identify the key laws and regulations your business must comply with and also search for any instances of non-compliance, through examination of your financial records, transactions, communications with regulators and discussion with yourself.

Whether it’s financial irregularities, errors, or fraudulent activities within your business, with a targeted approach, your auditor will investigate discrepancies and provide meaningful recommendations for improved financial management.

Building a business fit for the future

Whether you see the current environment as a risk or an opportunity to your business, the current focus of auditors on your internal processes and controls can really serve to reassure your investors or other stakeholders.

Because your audit will be undertaken by a third party, the process will provide an entirely independent review of your business’s financial statements. Not only will this ensure accuracy and reliability, it will also highlight your commitment to transparency, accountability and sound financial management.

Whether it’s your investors, lenders, and other stakeholders who rely on your financial statements to make strategic decisions, being able to show the accuracy of your financial information will help to build trust and a robust reputation.

Ultimately this can lend you favour when it comes to attracting investors, customers and partners, all the while opening doors for growth and building a business which is fit for the future.

Helping you to hone in on risk

There’s no denying that competition, challenges, risks and opportunities are rife in today’s business landscape. But by proactively identifying and honing on these, you’re standing your business in good stead for the future.

If you’re considering delving into the risks you face, how your processes are working or are starting to gear up towards needing an audit, our team are here to support you, please feel free to get in touch.