How do you benefit from an audit?

Management often are required to have an audit and simply view it as a legal or constitutional imposition from which they derive no tangible benefit.

Specific aspects of this view are based on the auditor’s responsibility to report to the members on the truth and fairness of financial statements. Management may not see any added value from this. Widen the picture and view the auditor as a business advisor. The possible ways the audit can be seen to contribute to the development of the organisation are then plentiful.

Risk management

An audit requires the auditor to perform specific procedures to assess risk – where auditors find a high risk they look at it extremely closely. Where auditors identify a risk from an audit point of view it is likely that in some way it also represents a risk for the business. The auditors' assessment of risk may benefit you in two ways:

• The auditor is not involved in the day to day running of the organisation. They may identify risk issues of which management are not aware.
• The auditor's independent 'look' may help you to identify cost effective methods of reducing risks to the lowest practicable level.

Constructive business advice

Traditionally, an audit is followed by a management letter or business issues report. It should not just be a method of communicating weaknesses.

The auditor can use their detailed knowledge to give commercially based constructive advice as to how the running of the organisation may be enhanced through improvements in internal accounting and control systems.

Enhancing business decisions

The quality of decisions are only as good as the underlying information used. The information used needs to support decisions made and comes from the organisation’s management information systems.

In performing an audit, the auditor is required to obtain an understanding of internal control relevant to the audit. This may identify weaknesses leading to inaccuracies in information being relied upon by management. The audit of recorded financial information also provides a periodic check that the management information being used as a basis for decisions does not contain any significant errors which might invalidate the basis on which those decisions have been taken. This would give management an opportunity to revisit those decisions before, perhaps, it is too late.

Planning for the future

When making important decisions it is often valuable to have a second opinion from someone outside the decision making process. The auditor is an ideal party to fulfil this role. Having already built up detailed knowledge about the organisation during the audit, the auditor is best positioned to make constructive observations on the organisation’s plans.

Complying with legal obligations

The legal requirements placed on management of an organisation include many statutory responsibilities, which may seem to have little to do with the effective running of an organisation. In many cases the independent auditor will have to check on whether management are fully complying with many of their statutory responsibilities in order to form their view on the disclosures made in the financial statements. This should help ensure that management do not go too far wrong.

An audit should be more than just a statutory responsibility.