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Why Regular Auditing Is Important to a Business

From stakeholder confidence to keeping the taxman off your heels, a business would do well to schedule regular audits.
Zak Goldberg is a Law & Business Graduate from the University of Leeds who has chosen to follow his aspirations of becoming a full-time published writer, offering his expertise on all areas of law, finance and business.
Zak Goldberg is a Law & Business Graduate from the University of Leeds who has chosen to follow his aspirations of becoming a full-time published writer, offering his expertise on all areas of law, finance and business.

If there is one lesson to be learned from all the current problems besetting global electronics giant, Toshiba, it is becoming increasingly apparent why regular auditing is important to a business. There is some major amount of concern that this multinational conglomerate may not survive their current troubles and to think it all began with an auditing scandal made public in early 2015. Not only is regular auditing important to a business, but ethical and transparent auditing is the foundation upon which a business builds trust on all levels. Consider the following key reasons why regular auditing is tantamount to success in any business large or small.

Stakeholder Confidence

At the heart of any audit, internal or external, lies transparency. Nothing troubles stakeholders more than a lack of knowing the true state of the finances of any company they hold stock in. Even companies on a downswing can benefit from transparent financial reports and many will hold for a time to see if profits can be turned around. When a stakeholder feels that they are not being given honest information, they will turn and run at the earliest opportunity before losing their entire investment, which is what they fear will happen. After all, why would a company not be forthcoming with reports if there was nothing to hide?

A Banker’s Perspective

Then there are lenders to be considered. The first people to spot something awry are lenders, of course, because dealing with finances is what they do! If a company is experiencing financial difficulties, the very worst thing they can do is play with the ledgers. An external audit will spot that immediately and that company will be in worse trouble than it already is. Both internal and external audits are necessary to keeping figures accurate to the penny, keeping lenders satisfied that nothing is amiss. Few companies never experience financial difficulties, and business loans are commonplace, so audits can ensure greater confidence among lenders.

Profitability and Taxation

The government is not something to fool with. The taxman will want his cut and if anything smells even the slightest bit foul, you can bet they will require an audit by the auditor of their choosing. One of the reasons why your company may wish to have regular internal audits is to avoid being scrutinised by the taxman. At least you will get to work with the auditor of your choice!

Direction Going Forward into the Future

All of the above notwithstanding, regular audits can help companies plan for the future. Audits can show where losses are occurring and indicate reasons why a company is losing money. They can also underline areas of strength in which a business may wish to invest more heavily going forward. The purpose of being in business is to realise a profit and the bigger the margin the better. Regular analysis of audits provides the metrics necessary for future investment and growth.

From stakeholder confidence to keeping the taxman off your heels, a business would do well to schedule regular audits. Don’t wait for shareholders to demand an audit as in the case of Toshiba or the taxman to begin delving too deeply into your financial affairs. Be proactive. Schedule your own in-house audits so that you can spot problems before they become insurmountable. These are among the leading reasons why regular auditing is important to a business and you’d do well to heed the warning. Hire your own auditor before one is chosen for you. You may not be happy with that outcome.