Under the requirements of the Companies Act, all companies in Malta are subject to mandatory audits.
Although there is a limited audit exemption for companies with a turnover not exceeding Eur 80,000 for the first 2 accounting periods provided that shareholders are all qualifying shareholders.
Audits are to be carried out in accordance with ISA as issued by the IAASB and they are the basis of the preparation of the income tax return to filed annually.
One may deem that the audit is a necessary expenditure with no extra value other that meeting the legal requirement for a statutory audit. This is not the case, as a well-executed audit provides a lot of advantages to both the management, shareholders and other stakeholders of a company:
1. Business improvements:
Audit provides an invaluable independent perspective on the numbers generated by management.
Challenging questions by the auditor and subsequent responses by management will give confidence that the figures are reliable when presenting their management accounts.
Also, the detailed process in which in income, expenditure, assets and liabilities are being scrutinised, coupled with the auditor’s financial expertise, can then be used management for better financial planning, budgeting and financial decision-making for the future.
2. Detect and prevent fraud:
Since the audit does not just focus on numbers as auditors seek an understanding of the company’s overall systems and controls environment.
Experienced auditors are skilled at pinpointing weaknesses in the company’s systems and controls which may give an opportunities to commit fraud.
This will enable them to identify deficiencies in the accounting systems or controls for which recommendations can be made, making the company’s business more efficient and less prone to fraud or error.
From the shareholders’ perspective, especially for those who are not involved in the day to day operations, the audit will give them confidence that the company is being run within their best interests and can highlight any issues that have occurred which may not have been brought to their attention.
An audit provides independent verification that the financial statements are a true and fair representation of the company’s current situation and ensures that all events that can adversely affect the company have been disclosed.
This provides invaluable credibility and confidence to your organisation’s customers / clients, suppliers who may extend generous credit terms, potential investors if shareholders want to sell their stake, and potential lenders such as banks when seeking to raise finance.