The importance of audit has increased exponentially over the years. Regardless of the company’s size, the audit tends to be an equally important tool for all companies because of the importance it holds in enabling transparency within these companies.
As a matter of fact, this is primarily because there has been an increasing emphasis on ensuring that all the stakeholder interests are duly protected when it comes to companies functioning.
In this regard, companies must consider auditing their financial statements and their operations, regardless of their size.
Notably, in the case of Small and Medium Enterprises (SMEs), they need to consider having a holistic idea about their internal operations to evaluate their strategy and possible areas of improvement.
Even though they are not liable to conduct these audits under law, it is beneficial for them on many grounds.
Importance of Auditing for SMEs
Firstly, it can be seen that these audits greatly help companies to identify the relevant problems in the existing accounting system. As a matter of fact, it is helpful for them in the sense that after conducting the audit, they can identify their weaknesses and work towards these weaknesses to ensure that they are able to get the best possible results.
As a matter of fact, SMEs cannot always afford costly consultation, because of which they are often unaware of the aspects they can work on in order to extrapolate better results.
In the same manner, it can also be seen that SMEs’ audits can help them uncover fraud, which could include different situations where employees steal money from the company. Conducting an audit can help SME owners to find out where they are going wrong and what they can potentially do to mitigate the risk of fraud.
Audit for SMEs can also help companies to improve their accounting practices. When an audit is conducted, it can be seen that companies are able to properly evaluate the options that they have when it comes to different accounting software. In most cases, SMEs cannot always afford to have designated accountants or accounting departments figure out this issue.
However, it can be seen that using audit, they can subsequently be able to get consultation about the different accounting software that is present, and how it can be used for the purpose of accounting software within the company. The consultation facility that is available to SMEs tends to be one of the primitive advantages of the audit process.
In addition to how this can contribute positively towards guiding them about better accounting practices, it also gives them substantial credibility about tax planning. This means that it can facilitate SME owners to get advice about filing their tax returns so that they are able to decide on this strategy in a better manner.
In the same manner, it can also be seen that if the financial statement is properly audited, it builds up the credibility of the company’s financial records in an impressive manner.
This is because of the reason that if the financial statements have been audited, the stakeholders tend to believe that the records of the company are free from any material misstatement.
Hence, this adds a layer of transparency in the records of the company, which considerably builds up credibility in this aspect. The importance of audit for SMEs tends to stem from the rationale that it is used as a preventive measure to ensure that there are no questionable occurrences within the company. This acts as a confidence booster for lenders and creditors.
Therefore, audit tends to be an important component of SMEs that cannot be denied at any cost. This is something that organizations need to be wary of to ensure that their operations are normalized in terms of no frauds or material misstatements. This can be treated as a step to help SMEs realize their weaknesses and how they can be tackled in order for the company to grow and prosper.
Despite the fact that it might come off as an additional cost for the company, it can be seen that in the longer run, it pays off because the SME can ensure that they are protected against any possible risks that might harness their reputation or incur financial losses.