We all know shareholder is the legal owners of the company. In small medium size entities like family business, shareholders can take part in day to day management. That’s mean, the shareholders also is director in the company. In Malaysia, all companies are required to have their own accounts audited. Which is having to conducted by an independent person who must followed the standards established by the Auditing and Assurance Standard Board, a federal government body. Most of the company director or shareholders feeling unhappy for the mandatory of accounts audit especially for the small medium entity company. These are because of the highest audit fee charges by the audit firm Sometime, the auditor will charges extra cost in the testing process. It make the small medium entity company cannot effort for the cost. But on my opinion, I will agree for the audit abolished for small medium entity company.
The financial statement report showed how the company performing during the year. It does can assist the company shareholders and stakeholders to their future decision making process. Despite the fact that the importance of the auditing function, many countries such as the United Kingdome (UK), Australia and a part of the Asian countries like Hong Kong and Singapore are no longer to required accounts audit for small medium size entities if the certain criteria are meet.
But, Malaysia is the Asian countries which accounts audited are still mandatory for all companies. Under the Companies Act 1965, all the companies regardless of their size, private or public owned are required to have their own annual accounts to be audited by the independent auditor. Only the sole-proprietorships and partnership will be exempted from preparing audit by independent auditor.
What is Auditing?
Auditing is the procedure to examining and verifying company annual financial records and this job have to conduct by an independent auditor. What is the goal for audit? Auditor are appointed to scrutinise independently the financial statements and to report to the shareholders on whether the financial statement showed are “true” or “fair”. The auditor will do the analysis regarding all the company financial statements, and review the financial position of the entity. The main objective of the auditing are categories to 2 type, there are primary objective and subsidiary objective. The objective job scoop including analyzing the internal system, reviewing the authenticity and validity if transaction, examining arithmetical accuracy of books of accounts, casting, balancing, finalizing the current value of assets and liabilities and inspecting the variance between capital and revenue type of transaction. The subsidiary objective also known as secondary objectives. These are the type to completing the primary objective. There are finding and preventing errors, finding and preventing of frauds and unusual stock valuation. The conclusions from an auditor are published as part of the financial statements in the audit report. It’s detailed process that includes interview with the company management, testing internal controls and examining sample of the accounts transaction. They also will be looking to the any of the thing listed to the company financial statements or accounts have supporting documents to substantiate the figure. Depending to the nature of business for the company, sometime the auditor also will examine the plant and equipment. They will reveal if the internal controls are lacking or inadequate. Some of the people believe that auditing is not important, but actually, auditing is nothing but an inspection of all the financial and statutory records relating to the company financial position. Audit can help in attaining various important object, misstatement risks, prevention of any type of frauds and cost of capital.
The benefits of Auditing to Small Medium Entities Company
Most of the small medium entities company director and shareholders will be a same person. But not indicating the companies audit no need to abolish. Audit can help you improve in decision making process. Correct information is the very important in a business no matter what kind of business you are running, a misleading of information will lead to make a wrong decision in the future. An audit can increase credibility is because of the result after the financial statement auditing, the process is an independent view given by a trained professional who is governed by strict ethical code. Therefore, an audits can increase the value by prepare multiple stakeholders with more exactly information to leads to a best decision by managers, better investment decisions by investors and better policies decision by the authorities. The public remain under security exchanges and the requirements are given under it. The accounts that are audited are easily accepted by the government like Centre banks, public authorities one the auditing job has done.
Audit can bring financial discipline. Produce an auditing job must need to prepare proper accounts. These could help you to save your money because of the new Companies Act 2016 has imposed increased liabilities to company directors for failing to prepare adequate financial statements. Audit is a major deterrent against fraud, money laundering and other illegal activities. It’s could potentially include situation where the staff or management are stealing money or stock from the company. An auditor will verified differences of the transaction and easier for you to solve the problems. Even if the audit design is not for detect fraud, there is no doubt that in the absence of an audit, fraud and errors are more likely to occur and go undetected without any independent examination.
Audit can uncover certain things of your company that you might not know before when the audit works are completed. Sometimes, the company directors or shareholders will be surprised by the result from audit. From here, it can help them find out the transaction they might have overlook the financial situations that were occurring in company before. Audit can provide directors or shareholders with confidence in the accuracy of the financial report. Audit can help for reducing your company financing cost. Audited financial statements play a key role in the raising of finance and capital. Without a comfort of an audit view or opinion in the audit report, even the lenders make financing available, they also would be taking on more risks and are thereby forced to raise financing costs which will be counter-productive for small medium entities company.
Audit may identify problem and weaknesses for your company accounting system; it’s allowing the improvements to be made to eliminate the problems in future. It may discovered that the system did not tracking certain transaction correctly, or maybe will make you find out the errors payment that need to be corrected. An auditor also can identify poor accounting practices, some of the staff will getting lazy to present the correct financial tracking steps for the transaction. This is not easier for you to getting this issue unless you can view the overall picture, which is possible with an audit.
Proper tax return based on audited accounts can save your company cost perhaps more than your audit fee. External audit will guarantee that your proper tax are filed to the Inland Revenue Board (IRB) and current Section 77A(4) of Income Tax Act requires tax return furnished by companies to be based on audited report. An auditor will assist in verifying the weaknesses in tax compliance, and they also provided a chance for companies to avoid breaking the tax law unintentionally and thus incurring penalties. They also will help your company interact with the tax agent in many other ways. By planning ahead, taxes are less stressful and easier to file.
If you are planning to sell your company within next few years, an audit may help you increase the credibility of the company’s financial records. You will easy to prove the financial security of the business if you can show the success financial documented information of your company over multiple years. The event of purchase has to be verified within the management and by the sales team. It is interrelated to the settlement of claims, retirement funds and etc. in case of loss of property, one has to enhance the activities with moral values.
Audits can easy access to professional advice. Audits assist the company management to improve their business processing and also the internal controls system. The auditor are trained professional specializing in risk assessment and evaluating internal control systems. With the help from them, you will need not to using extra time and cost to generate revenue, and you will also have peace of mind that an expert is taking care of the details. It also can help in discussing the profit and loss of the company. Most of the employees or staff can disclose their ideas once which they are lacking and how overcome those obstacles.
When you are thinking the audit fee is highest, why don’t you think the benefit bring from audit is more than the cost you have pay. Do you know how many you can earn from the value of audit for your clients or customers? Believe is in the heart of the business now days, the account audit provide your customer with a strong message regarding to the financial management of the business, the ethos of senior management of the company, the strength and efficiency of the business and the integrity of the operation. In addition, your company also received the confidence from your supplier. Credit is major issue for the suppliers, they need to know whether a customers is in creditworthy and whether a company pay bills on time and will remain solvent in the near future time. An independent and professionally conducted audit makes a different between a respected supplier extending credit or refusing it. The commitment to an audit shows customers and suppliers that you are a business partner that is well-managed, credible, and open to professionally qualified advice and is keen to remain competitive in the business environment (MIA, 2016)
One of the biggest benefits of audit is can let you get a clear understanding of the financial situation of your company. Most of the company directors or shareholders did not know the company cash flow, profit margin and etc. But the auditor will give you both of the information that you need in detail with clear to make sure that you can make a right financial decision in the future time.
Conclusions, an independent audits can benefits to small medium entities company although the type of benefit obtained by small medium entities company may differ from those enjoyed by large entities operating in the global capital markets. An audit lends assurance to the reader that the preparation of financial statements is in compliance with the applicable accounting framework, thus increasing the credibility of the figures presented in the statements of financial position and financial performance of the entity. The independent health check, which covers the ability of the entity to continue as a going concern also acts as a main fraud deterrent. Furthermore, where control deficiencies are identified during the course of the audit, they are brought to the attention of management rectification. Nonetheless, these benefits do not come without costs, especially for small medium entities company which are relatively more cost conscious. Many of the small medium entity business can’t afford to hire expert certified public accountants to handle their daily ongoing financial records. By using an independent external auditor from time to time provides you with the chance not only to identified your figures, but also to learn a ways to improve your processes and procedure in accounting. an external auditor might notice areas in which you can improve your cash flow, reduce debt-service interest, depreciate assets, take more deductions or institute other capital management techniques that improve your bottom life.