The All Important Art of Auditing!
An audit is performed by a third (official or appointed) party. Most people consider it a major issue, but it’s not really. There are two main parties who can do a physical audit:
1. HMRC (Her Majesty’s Revenue Services) through the use of their own Chartered Accountants. Ensure that you ask them for identification!
2. Independent auditors. This will be because your business entity requires so by law eg: if you are a Pty (Ltd), or on behalf of banks and other official institutions. Remember that YOU appoint an auditor in these cases. Ask why you are being audited, because a closed corporation or sole proprietor does not need an audit by law.
An audit means that either HMRC or a registered auditor (a chartered accountant who is registered to do so) has a closer look at your administration and makes sure that it is in line with legislation (VAT, CGT and labour laws) and/or GAAP (General Accepted Accounting Principles). In short, just think of it as a tune up, and you can learn from it at the same time – if you manage your own books. To make the audit as smooth as possible there is one basic rule – be prepared!
The infamous “admin in a shoebox” will not impress and will be subject to a thorough investigation without exception. But, if you just file your ‘stuff’ neatly (it doesn’t have to be professional) it will help a lot. If you make use of a bookkeeper or accountant then she/he should attend the audit in your place. Do NOT do it yourself even though you are the person who is responsible in the end!! Your bookkeeper or accountant has to attend the audit without charging you. Make sure that this is part of your original contract with them, otherwise you could be in for a nasty surprise, especially when the auditor asks them to do more work on your behalf. More so if you are not aware of what is going on. Ask and, if necessary, speak to the auditing party and/or an independent expert.
In the end there are two (or three) scenarios:
a) An independent auditor will ‘sign off’ your financials (Audited Annual Financial Statements) and they will normally submit it for you to whoever needs it (banks, shareholders, members etc.).
b) HMRC will always assess the audit and make corrections, if any. Arrangements with HMRC should be explicitly stipulated in writing to you. Any payments due after the audit/assessment should be adhered to, but investigated. HMRC employees are also human and therefore able to make mistakes.
c) The third scenario is where you do NOT want to be. Realize that HMRC can penalize you with imprisonment if so required, so stay on track!
As an accountant myself I can only advise you to use the means available to you. Use an accountant or registered book keeper, make use of E-filing as supplied online by HMRC and talk to the Labour department. I know it sounds, looks and feels like a painful process but use the people who are in the know. In the end it will pay for itself.
And, as always, if in doubt about anything:
Ask GreyMen on www.flirtingwithfinance.wordpress.com
Focus on what YOU are good at. Let somebody else make a living too and keep you out of trouble, and acknowledge the fact that you do not understand all of it. Believe it or not but legislation is hard on us and with the new rules of GAAP coming up the IFRS (International Financial Reporting Standards) are not to be treated without respect and I’d have to say not without a good painkiller to hand either!
Remember the following:
‘Good’ books are a reflection of how good you and your company are.
‘Cooked’ books are a reflection of how good you want to be.
Happy auditing!
For further financial information or information about this article please see http://www.greymen.co.uk
Anco van Velsen
Jane van Velsen - The Right Writer
