A financial audit may appear frightening at first, but don’t worry! It is simple to complete if you understand the significance of a financial audit and how it may help your organization prosper in the long term. There are several reasons why a financial audit can be beneficial to a business, but in this article, we will look at the three main reasons why doing an audit is necessary to sustain a business and how it may be beneficial in the long term.
What exactly is an audit?
Before delving into the various reasons why a financial audit is crucial for a firm, we must first define an audit.
According to the Oxford Dictionary, an audit is an official examination of an organization’s financial records, often conducted by an impartial agency such as an audit company. It is also to audit a company’s financial accounts and records to guarantee that no shady behavior is taking place within the organization or business in particular.
When is a business audit not required?
In Singapore, the law specifies that most corporations are required to undergo statutory audits. In Singapore, a firm must also be incorporated before it may undergo statutory audits. However, there are specific situations in which firms are not required to undergo statutory audits, such as the following:
- Companies that meet the definition of a small business.
- A corporation is classified as tiny if it fits two of the following three criteria:
-A total asset worth $10 million or less.
-Total yearly sales of less than $10 million, and
-At the end of the fiscal year, the number of full-time employees shall not exceed 50.
If a firm in Singapore fits the above conditions, it is not required to undergo statutory audits and may be excused. Other firms that do not fit the aforementioned criteria must have statutory audits and must go through the auditing procedure, which is normally performed by an audit company or an independent agency.
Why is a financial audit necessary?
Running an audit has various advantages for firms. Returning to the fundamental topic of why an audit is important for a business, it allows the firm to be inspected via their financial records to determine and uncover any questionable business practices that may be occurring in the organization through the back end. The following are some of the primary reasons why an audit is essential.
1. An audit gives a company’s financial records legitimacy.
When a firm’s financial accounts are audited, shareholders can learn if the company is tallying their financial figures and if nothing appears to be wrong with the business financially. It can also help to avoid misstatements of stated information.
2. It assures that no corporate choices were influenced by prejudice.
An audit can assist in determining whether or not the company’s actions were influenced by the management or other factors. It also avoids unethical situations from arising because the audit is normally performed by an impartial entity rather than within the firm itself.
3. It also offers reasonable assurance that the financial records are accurate.
The auditing process gives reasonable confidence that the records match what the financial statements are expected to represent. In certain circumstances, organizations fail to complete reports with enough information, and conducting an audit may assist to guarantee that no information is missing and that everything is given in the reports.
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