When your business needs an audit, and how to be ready for it

We are often asked whether a business is obliged to have its accounts audited. The answer is rarely a plain yes or no — several sources of obligation overlap, and it is enough for one of them to apply.

Where the obligation comes from

• Commercial companies law: businesses must keep proper accounting records, and certain company types must appoint an approved auditor
• The licensing authority: many free zones require audited statements at licence renewal, some naming the auditor from their own approved list
• Corporate tax: Qualifying Free Zone Person status is conditional on audited statements — with no exception
• Banks and financiers: a credit facility or project finance usually comes with the requirement attached
• Partners and investors: shareholder agreements frequently stipulate it

Accountant and auditor are not one role

The accountant keeps the books and prepares the statements. The auditor is an independent party who examines them and gives an opinion. That independence is substantive, not formal: whoever prepared the statements does not audit them, or the report loses its meaning. We prepare and make ready; we do not audit what we prepared.

What the auditor asks for

Good preparation shortens an audit more than anything else. The usual pack:

• A closed trial balance and draft financial statements
• Bank reconciliations for every account through the closing date
• Confirmations from customers and suppliers with material balances
• A physical count of inventory and fixed assets, documented and dated
• Constitutional documents, leases, loans and long-term contracts
• Payroll registers and the end-of-service provision
• VAT returns reconciled to revenue in the ledger

What actually delays the report

Audits rarely run late over a disagreement on opinion. They run late for simpler reasons: opening balances never resolved from the prior year, a "sundry expenses" account absorbing whatever was not classified, a director's current account mixing personal with business, or missing documents behind material items. All accounting work, to be done before the auditor arrives rather than while they are there.

The audit serves the tax file too

Because the corporate tax base is built from accounting profit and then adjusted, audited statements give the return a basis that is hard to challenge. The reverse holds as well: loose books produce weak statements, and weak statements produce a return that is hard to defend.

A short readiness list

• Close monthly rather than annually — an annual-only close manufactures a crisis every year
• Separate the owner's account from the business's completely
• Keep documents attached to their entries, not in a separate archive
• Reconcile banks monthly and settle differences as they appear
• Agree the timetable and the document pack with the auditor early