Audit of Annual Accounts

AUDIT OF ANNUAL ACCOUNTS

AUDIT? WHY? MANDATORY OR VOLUNTARY?
WHAT IS AN AUDIT?
A financial audit means the review and verification of the financial statements, as well as other accounting documents, prepared in accordance with the applicable regulatory framework, making sure the report issued as a result represents the reliability of such documents, something which may be of interest to third parties.

The audit of financial statements must be carried out by an independent chartered auditor or by an audit firm, who must comply with current law and regulations.

WHO IS SUBJECT TO AN AUDIT?
There are several cases in which the company may be required to be audited. The most common one, which usually takes companies by surprise, is the following:

Companies (regardless of their legal form) will be subject to audit if they exceed the limits set for submitting an abbreviated balance sheet, i.e. when they meet at least 2 out of 3 on the following criteria for two consecutive financial years at the time of their year-end:

a) Total assets over EUR 2,850,000.
b) Net annual turnover over EUR 5,700,000.
c) The average number of employees during the financial year is more than 50.

Another common case is that a number of shareholders, representing at least 5% of the capital, request for the annual accounts be audited. This must be officially applied for to the relevant merchant registrar within 3 months from the financial year end date.

There are other scenarios where an Audit of Accounts is mandatory and we will discuss those in a separate document.

VOLUNTEER AUDIT? I AM NOT OBLIGED TO AUDIT MYSELF, WHY WOULD I? WHAT BENEFIT DOES IT BRING TO THE COMPANY?
Some advantages and benefits of undergoing a voluntary external Audit are:
  1. Greater reliability of the Company’s financial statements and greater transparency to third parties. This reliability translates into increased credibility in front of suppliers, customers or financial institutions.
  2. Identify internal control weaknesses and offer improvement proposals in order to avoid potential accounting errors and possible fraud.
  3. Error-free financial statements are the best starting point for strategic decision-making.
  4. Growing companies and startups often devote most of their efforts to business generation, in many cases unaware of internal and administrative control processes. Such companies can benefit greatly from external audits to safeguard the effectiveness and efficiency of these processes.
  5. In voluntary audits, it is not mandatory to file the audit report along financial statements in the Commercial Register, thereby preventing it from being public to third parties.
  6. Implementation of a suitable accounting criteria that will prepare the Company for a future mandatory audit, ensuring from early on that they will be able to obtain a favorable audit report.
  7. Audited annual accounts can facilitate access to loans or funding lines, as well as meeting eligibility criteria for possible grants from public bodies.
  8. In depth tax review, helping to avoid possible errors in tax settlements and, consequently, minimizing the risk of possible future tax contingencies.
  9. The purpose of the external auditor is not, in any case, to judge and/or supervise the Company, but to offer advice and support based on their knowledge and experience.
We firmly believe that an external audit is an investment rather than an expense, because it drives the organization to improve its management procedures, increasing efficiency and improving its results.

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