27 February 2019
Having an audit of a tech company’s financial statements can be a hugely valuable process, despite audits commonly being thought as of something only big companies need to worry about.
For a traditional owner managed business, the decision to have an audit usually comes down to the statutory requirements – i.e. if you’re not legally required to, you probably won’t have one. That’s generally a reasonable stance to take when there are few major outside interests in the financial position of the organisation.
However, getting an audit done before the statutory requirements kick in can often be a valuable exercise, especially for a tech company that is scaling or about to scale up.
It shows investors that there’s good financial control
Investors will always look at the financial statements of a company they are about to invest in, so having a clean audit report attached to those financial statements can be very valuable. It shows not only that the figures reported are reasonable, but also that management have good control over the financial processes.
It’s also reassuring from a current investor point of view to see that a third party is satisfied with the financial position of the company. It adds a lot of credibility to both the figures and the management team in place.
In addition to investors, an audit report will also be received positively by other stakeholders in the company – for example, suppliers, customers and employees (especially those with share options).
It gives a third-party view of the finance function
The auditor will review financial controls as part of the audit process and will report back to management on any significant areas of weakness via a “Letter to Management”. Weaknesses are areas where errors have occurred or could potentially occur in the future, so are well worth knowing about. The letter will also provide recommendations for how to improve, and resolve these areas of weaknesses. By following up on these recommendations, the company can reduce the potential for errors to occur.
It can prevent undetected errors from snowballing
The audit process aims to identify any material errors in the reported figures, whether arising simply through problems with the processes and controls or through more complex issues such as non-compliance with accounting standards.
Any large errors in an unaudited set of financial statements will eventually come out in the wash, usually when the first audit takes place. These errors can often snowball into much larger problems over the years so the earlier they are detected, the easier they are to correct.
Ultimately, there is a lot of value in the audit process for a tech company that is beginning to show signs of good growth, over and above the points discussed here. The decision to commission an audit shouldn’t be taken lightly however as it can consume considerable amounts of time for the finance team, especially as the finance function needs to be continuing to operate as normal when the audit takes place.
At UHY, we have used our many years of audit experience to streamline our processes, meaning we can carry out an efficient and valuable audit. If you’d like to explore the possibility of having an audit, please get in touch with your local UHY contact.