Cottons Group
Audits explained: when they’re required and why they matter
Audits may seem like a once-a-year routine for many businesses, often associated more with larger corporations than small enterprises. However, audits are increasingly benefi cial for organisations of all sizes, off ering insights beyond compliance. They can help identify risks, uncover operational
Charles Hill Partner
Cottons Group
improvements, and gain trust from investors, stakeholders and clients. Understanding when you need an audit, why it might be required, and what it can off er is essential for making the most of this often-underused tool. Audits are not just about checking numbers or meeting
legal obligations; they provide deeper fi nancial clarity and accountability. T ey help confi rm that fi nancial records accurately represent a company’s position, reassuring management, investors and other stakeholders. This validation can enhance credibility and open up new opportunities for businesses, particularly in competitive or highly regulated sectors. One reason audits are highly valued is the security they
provide in an era where fi nancial transparency is closely scrutinised. According to a recent study by the Chartered Institute of Internal Auditors, over 60% of UK businesses believe that regular audits have improved their risk management and fi nancial accuracy. T is indicates a strong shift toward audits as proactive rather than reactive measures.
Is your business legally required to have an audit? For certain businesses, an audit is a legal requirement rather than a choice. In the UK, companies meeting specifi c criteria – such as exceeding certain turnover or asset thresholds or having a substantial number of employees – must have an annual audit. As of the 2024/2025 tax year, an audit is mandatory if a company exceeds two or more of the following thresholds: ■ Annual turnover: £10.2m ■ Gross assets: £5.1m ■ Number of employees: 50 or more
If your business does not meet these thresholds, an
audit is typically optional. However, exceptions apply to certain industries, such as fi nancial services and charities, where stricter regulatory standards may mandate audits. Many companies, regardless of size, choose voluntary
audits to provide transparency and build trust. Investors and lenders often seek independently audited fi nancial statements as a mark of reliability, and a voluntary audit can help establish credibility in a competitive market.
How an audit can benefi t your business Undertaking an audit can yield numerous benefi ts, even for businesses that aren’t legally required to undergo one. Audits can strengthen internal controls, uncover operational ineffi ciencies, and identify risks before they become signifi cant issues. Companies often discover ways to streamline processes or improve fi nancial management practices during an audit, ultimately enhancing profi tability and stability.
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