The idea of an audit is about as much fun for most business owners as a trip to the dentist on your day off, but it needn’t be if you have the correct accounting systems in place.
An audit is nothing more than a formal periodic examination of an organisation’s accounts and financial records. It’s done to verify that funds were used as they were intended and in accordance with standard financial management practices.
Ferdi Cloete, a partner at auditing firm Nolands, says audits are important because they provide extra assurance to users that the financial statements are free from any misstatements, omissions or errors. “Audit reports contain an important message. They give shareholders and potential investors the assurance that companies comply with legislation and practice sound financial management.
“As part of an audit review, the auditor provides the client with useful information and recommendations that will help management with future decisions. That’s why the audit is not merely a review of historical information, but also a useful tool for future business planning.”
Audit reports inform users of where they or the business are falling short. “They show you what needs to be remedied, and what corrective action must be taken if there is a problem,” says Gary Epstein, MD of QuickBooks. “The reports also produce positive messages about where and what the business is doing right and what it can capitalise on. Accounting forms the basis of all of that.”
Accounting software provides the platform for accurate and complete financial data recording, effective business solutions, review and decision making.
“Accounting software is also a control tool for companies,” Cloete adds. “It controls flow of information, recordkeeping, accurate calculations, stock management and basic working capital management.
One of the main advantages of accounting software is the ability to process a basic financial transaction of any sort or size into a presentable financial report, enabling users to understand and use the data. With the many legislative requirements imposed on companies, accounting software and support enables users to cost-effectively comply with all the requirements. Well known and recognised accounting software programmes are updated annually with the latest legislative changes, such as tax rates, for example.”
Falling In Line
Accounting software like Pastel, QuickBooks and Palladium Accounting is designed in accordance with recognised accounting standards. It enables users to prepare relevant and accurate reports that comply with the rules.The Companies Act stipulates that only listed companies, and companies deemed to be in the public interest, are required to be audited. Others may choose between an independent review or an audit. “When you consider the value of an audit to the business, there’s no question that every company should undergo an annual audit,” says Steven Cohen, MD of Softline Pastel. “There’s no point knowing that your trial balance balances if the business is actually going insolvent.”
Think about who uses audited financial statements. “If you believe a bank is going to lend you R1 million without a set of financials, think again,” says Cohen. “The same goes for suppliers. If you run a business that sells guitars and you want to import from a company in the US, for example, they will not send you anything if you don’t have financials.” He cautions against ensuring that your admin is up to scratch just to make the audit cheaper. “Keep your books in order because it makes good business sense, not because you want to make the auditor feel happier.”
On a similar note, Cohen stresses that the accounting package you choose must be suited to your needs. “A lot of entrepreneurs are doing things for themselves these days, enabled by technology. But many auditors are uncomfortable with the latest software, and particularly with online accounting solutions. The point is that businesses have to use the most advanced software available, and auditors must get used to that. The days of dictating to the client are over.”
Epstein adds that in addition to meeting the requirements of various government departments, the software must take into account the requirements of the people in the business who actually work with it every day. The relationship between client and auditor is especially important. Trust is critical, but so is the auditor’s ability to add value to the business. “A thorough audit can enable the business to become more profitable each year,” Cohen says.