Who can Audit Accounts?
I was having a discussion yesterday with a group of nurse entrepreneurs and we were all comparing notes and strategies particularly during the start-up stage. One of the really interesting discussions was about whether or not you have to have audited accounts or not.
Now for the uninitiated, you may not even realise that there are two different kinds of accounts audited and unaudited. Put simply, audited accounts are prepared by an accountant and are then audited, which is process whereby they check a random number of transactions have been processed accurately. So for example, they may check that your £200 travel expenses on the 31st December was really a business trip or a taxi back from some disreputable nightclub in the heart of the city. Unaudited accounts are also prepared by an accountant but they take your word for it that the transactions are all correct.
One of the other big differences is the cost. If you want audited accounts you have to (surprise surprise) pay some to audit them. Often you pay several people to audit them including a senior accountant (the auditor) who signs them off as audited. This can easily add several hundred pounds (if not several thousand pounds) to the cost of preparing your accounts.
If you have come from a public sector background or a large private sector company, it is easy to assume that all accounts have to be audited as that is just the way things are always done. Many people dont realise that you may be able to have unaudited accounts which still meet all your legal requirements but can save you a lot of unnecessary expenditure particularly in the early days.
So what are the pros and cons? Well the most obvious con is the costs and the hassle it is much easier and cheaper to produce unaudited accounts and in fact I have only prepared unaudited accounts for the last 5 years as a social entrepreneur. The pros are that some public sector funders (but by no means all) want them and at a certain size you have to have audited accounts whether you want to or not.
Initially we were worried that our unaudited accounts wouldnt be taken seriously and we would have to go and get them audited. Over 5 years though, we have secured £50, 000 of bank lending, £60, 000 of venture capital and over £250, 000 of public sector contracts all by using unaudited accounts. In all that time, n-one has even asked us why our accounts were unaudited let alone asked for them to be audited.
So what is the legal position? Well Companies House provide some really useful guidance information at Companies House and Business Link (who do have their uses from time to time) have some additional info here and here.