Debitoor Dictionary

Accounting terms explained in a simple way

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Audit - What is an audit?

Aan audit verifies a company’s financial statements to provide a true account of that company’s activities

Starting and maintaining solid, professional accounting practices is essential for the growth of a business. Make sure yours are in order with Debitoor.

An audit involves the review of all financial documents, reports, and activities that a company has engaged in over the past fiscal year or period.

The aim is to ensure that all transactions are accounted for, income and expenses are reconciled with the necessary bank accounts, and that all finances are being handled correctly.

Not every company is subject to an audit. If your turnover along with your gross assets are below the statutory audit level, you may well not require an audit at all unless you have stated within your company’s Articles of Association that you require one or if it is requested by your shareholders.

If you meet any of the following criteria within a fiscal year your company will require an audit:

  • Your company’s turnover is above £6.5m, which is the statutory limit
  • Your company’s gross assets are above the small company limit of £3.26m
  • Your company is a regulated business, i.e. a financial service provider, solicitor or charity
  • Your shareholders request an audit
  • Your bank or a major lender make a request

Timing and audit preparation

If your company is due for an audit, it can take place during the financial year in which the auditing company wishes to perform the audit, or shortly after your year end.

In any case, it is always best to prepare as much as possible by making sure that your accounts are reconciled, especially your bank accounts and balance sheets.

An audit entails an additional expense for your company, so you may also need to make some provisions for the auditor’s fee. This is normally made in the year that the audit occurs and you should be given an indication of the cost beforehand if it hasn’t already been agreed.

Internal vs. external

Larger companies may retain an accountant to perform internal audits periodically. This means that the company employs someone to carry out an audit from within, rather than undergoing an audit conducted by an individual or company outside of the organisation.

Smaller companies that are subject to an audit will usually be audited by an external company with specialised accountants and the findings will be provided.

Audit prep and Debitoor

Ensuring your accounts are balanced and your transactions are reconciled with your bank statement is a simple way to be prepared for an audit. Debitoor automatically reconciles your income and expenses when you upload a bank statement, allowing you to keep your records up to date and accurate at all times.