Auditing is a process many organisations are legally obliged to go through. However, recent changes have meant that the threshold for businesses required to fulfil an audit has increased dramatically. Where previously companies with a turnover of £6.5 million, assets of £3.26 million and 50 or more staff (or two of the above) were required to submit an audit to Companies House, the turnover threshold has now been raised to £10.2 million, along with assets of £5.1 million.

These new parameters mean that many businesses are no longer required to submit audited accounts. However, just because an audit isn’t legally required, that doesn’t mean it isn’t still worthwhile. Many small businesses are still choosing to have an audit undertaken by an external firm so as to reap their associated benefits.

Many owner-managed businesses may see limited value in paying for an external audit, simply because they are directly involved in their company’s finances and confident in the quality of reporting. However, for those companies with a greater separation of management and shareholders it can be a helpful process to go through. If the business is externally-funded, for example, the bank or external investor may ask for an audit to be carried out for their peace of mind. The accuracy and quality of financial reporting, the potential for fraud and the robustness of internal controls, amongst other factors, can all be uncovered in an annual audit.

A good audit will always start with a detailed assessment of risk, considering factors specific to the business and its environment. Based on this assessment the audit plan should be specifically tailored to address the identified risk in the most effective and efficient manner. This might include testing internal controls, substantive tests of detail or analytical review. Increasingly, sophisticated data analytics software is being used to interrogate large data sets, flagging any anomalies or concerns.

In addition to delivering their audit opinion, most firms will deliver a management report, including feedback on systems and controls, and also recommendations, so as to hopefully encourage year-on-year improvements.

Alternatively, should a business decide a full audit is not necessary, it could opt for an assurance review instead. Assurance reviews have certainly gained in popularity since the increase in the audit threshold, and can be of particular benefit for small firms with specific queries regarding their finances. Whilst similar procedures are undertaken as would be in an audit, assurance reviews are often more focused in scope; examining a particular aspect of financial data.

So how would a business know, when seeking to appoint an auditor, that they will get a good service?

They should look for a firm that is willing to invest time into the business. A good audit firm will always take the time to get to know your business first, so that they can provide a truly tailored audit service. Getting this wrong can mean increased risk of unpleasant surprises as well as more time and effort for management. This hidden cost of an audit should always be considered alongside the quoted fee.

Before choosing an auditing firm, business owners should obtain testimonials too. There is no harm in searching around and seeking proposals from multiple firms, in order to find an auditor the business can trust to help navigate its financial future.

James Hadfield is a partner and audit and assurance specialist at accountancy firm, Menzies LLP.