Auditing in its basic form has been worldwide for most of human civilisation. There were individuals who double-checked the public spending in ancient Egypt and the Roman Empire. But auditing today is linked with the growth of modern industry after the industrial revolution around the mid-18th century.
Hire an Auditor
Work with UK-based Experts for tax, audit, accounting, payroll, & EIS/ SEIS needs.
The Audit Commission was a statutory Corporation in the UK that was established under the Local Government Finance Act 1982 and became operational on 1st April 1983. Their purpose was to appoint Auditors to all local authorities in England and Wales, set out auditing standards, and oversee their work.
However, on 13th August 2010, the Secretary of State for Communities and Local Government, Eric Pickles, announced that the Audit Commission would be scrapped to save £50m annually, and its functionalities would be transferred to the Local Government Ombudsman and not-for-profit or private accounting firms. After several discussions, the commission was formally closed on 31st March 2015, as was included in the Local Audit and Accountability Act 2014.
Today, the FRC (Financial Reporting Council) is the UK’s audit regulator, which oversees statutory audits in the nation, issue audit and assurance standards and guidance, monitor and enforce Public Interest Entity audit quality, set eligibility criteria for auditors, and oversee delegated regulatory tasks of the professionals.
This comprehensive guide will cover everything about audits and how the process has changed over time.
Table of contents
● What is an audit?
● Types of audits in the UK?
● How is the audit conducted?
● The current landscape of audit process
● Conclusion
What is an audit?
The Audit Commission first stated what an audit is in the UK and successfully conducted and regulated the process for over three decades, from 1983 to 2015. Today, the Financial Reporting Council (FRC) regulates audits in the UK.
Audit refers to the official inspection of an organisation’s accounts, financial statements and relevant documents, typically by an independent body. However, it can also be done by an internal audit or before conducting an external financial services audit.
Statutory audits are mandatory for companies operating in the UK unless they are eligible for exemption. An audit aims to ensure that the business financial statements are true and fair, follow relevant financial reporting frameworks and that the business processes comply with government regulations and industry standards.
If a small company meets any two of the following criteria, they are exempt from the audit process:
● Annual turnover up to £10.2m
● Total assets worth up to £5.1m
● Number of employees up to 50
However, even if your company meets the above criteria, they need to do an audit if asked by shareholders, regulators, investors, and the public.
If your company is part of a large group that exceeds two of the above thresholds, you must do an audit. Others include banks and investment firms, insurance companies, brokerage firms, and public companies that must do audit once a year as mandated by the UK government.
Read also: Auditor: What it is, 4 types, and qualifications
Types of audits in the UK?
There are mainly three types of audits conducted in the UK.
● Financial audit
It refers to the evolution of a company’s financial accounts. It is designed to ensure that the company’s accounts have been prepared properly, is free from material misstatement, fraud or error, and show a fair representation of the organisation’s financial position.
● Compliance audit
It refers to the detailed review of a business or organisation to check if all processes and systems comply with specific regulatory guidelines, government regulations, tax guidelines, etc.
● Operational audit
It refers to the evaluation of how your business conducts its operations. The operational audit aims at improving your organisation’s efficiency and effectiveness.
An external auditor or an internal auditor can perform audits. However, the report by an independent auditor is given more priority by shareholders, investors and regulators.
How is the audit conducted?
Audit firms in UK help companies with independent audit services and generate authentic reports depending on their findings.
The audit process includes the following steps:
● The company must prepare their financial report according to the appropriate legal, government and financial requirements.
● The auditor speaks with company owners and other accountable personnel to understand the company and consider all external factors that can affect the business during the reporting period.
● Then, they will verify the financial information to identify, consider and assess any potential risk and investigate the company’s infrastructure to see what protocols are taken to mitigate those risks.
● After identifying the risks, the auditor will examine the financial report and, by considering the risks, will ensure that it is accurate and free from material misstatements.
● The professionals will perform different tests of the financial information supporting the financial report to gather sufficient evidence for preparing audit reports.
● Additionally, they offer details on improving specific processes to boost your business financials and mitigate future risks.
Read also: Tips for hiring a Tax auditor in London
The current landscape of the audit process
There has been a drastic change in the audit process from the beginning years when the Audit Commission was responsible for regulating audits in the UK. Most established businesses had started digitising their documents leading to technology adoption.
In contrast, small businesses were on the way when Covid-19 compelled all organisations to adjust to the current situation and adopt technology as early as possible. It gave rise to several risks mitigated by the evolution of technology.
Today audit processes have adopted technology for data mining, processing and analysing financial data and helping auditors to gather evidence. It has reduced the time taken in the entire process, ease of work, and developed the quality of audit.
Moreover, internal auditors are no more bound to stay at your company while doing an audit. With the evolution of technology, everything is at ease. They can now travel and work while accessing data anytime and anywhere. However, the change in audit atmosphere can be difficult for them during the initial few years, especially to adapt to trending technologies.
Some of the latest audit technologies include cloud computing, artificial intelligence, robotics automation, data analytics, distributed ledger technology, and more. Tomorrow’s auditors must be digitally adept. However, they haven’t taken over the role of auditors, and audit reporting still needs human creativity.
Conclusion
Though the audit process has evolved and manual processes are now mostly automated, the need for auditors is still on the hype. Human critical thinking and analytic skills will always overpower that of bots, and therefore if you are planning for your company’s first audit, make sure to meet an audit professional.