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Many entities are governed by the provisions of company law or the regulations of another body, such as the Charity Commission. If the rules require an audit then the entity has no choice. But where it is not required, the entity has the voluntary choice to have an audit.

Broadly speaking companies require an audit when turnover is in excess of £6.5m or gross assets in excess of £3.26m.

Our advice would be to consider whether an audit will be of value if you have the option:

• selling your business in the next three years – an audit gives assurance to the purchaser and anyone doing due diligence on your business
• assurance to your stakeholders that the accounts present a true and fair view

Now is a good time to be asking that question as we are in a period of change. For accounting periods that started before 6th April 2008:

• private companies have ten months; and
• public companies (PLCs) have seven months

From their year end to file their accounts with the Registrar of Companies.

For accounting periods starting on or after 6th April 2008 the filing deadlines are shortened by one month so that:

• private companies will have only nine months; and
• PLCs six months

At present the only UK companies that have to adopt IFRS are fully and AIM listed parent companies. Certain public sector organisations are in the process of adopting IFRS such as NHS and universities. However it is likely that all companies will have to adopt IFRS in some form in due course.

There is an exposure draft in circulation as regards “IFRS for the small entity”. This might impact in two to three years time. Our advice is to understand what IFRS might mean for you so that you are prepared and in control of what your accounts say now and in the future.

When the directors sign a company's financial statements, they are effectively confirming that the company or group expect to be able to pay their debts as they fall due for 12 months from the date of signing the accounts. To support this assumption the directors would be advised to:

• prepare cash flow forecasts that show that the company or group can operate within their funding facilities for the 12 month period
• confirm, where necessary, that bank facilities are available for period or substantially most of it by way of a facility letter
• demonstrate that the assumptions underlying the forecast stack up to what is being achieved in the business to date
• compare actual performance to date with the forecasts to ensure they continue to provide reliable estimates
• reconcile the up to date management account balance sheet to the opening position in the forecast

Qualified audit reports arise for different reasons:

• the business is not a going concern
• the financial statements breach an accounting standard or law
• the auditors disagree with a material judgement made by the directors
• the numbers are materially misstated
• the required information has been omitted from the accounts

Each of these will have implications, so a qualification should be avoided if at all possible.

If the business has a going concern qualification then this could be very damaging as the suppliers, customers and funders may cut lines of credit to you. Other qualifications have less impact but can undermine confidence in the management team and could result in your accounts being investigated by the Financial Reporting Review Panel.

Companies can choose to file abbreviated accounts in, broadly, the following circumstances:

• companies can file small abbreviated accounts comprising a balance sheet and limited notes when two of the three size limits are satisfied
• turnover below £6.5m
• gross assets below £3.26m
• under 50 employees 
• medium abbreviated – when two of the three are less than, turnover £25.9m, gross assets of £12.9m and 250 employees. Historically medium sized companies were able to exclude turnover and cost of sales from the disclosures in their abbreviated accounts. But the rules change for accounting periods commencing on or after 6th April 2008 requiring disclosure of turnover

In our view the exemptions from filing should be utilised when you are truly worried about giving away competitive advantage. But consider whether you need to be found if you wish to sell your business in the future – Companies House searches do identify businesses if you are looking to acquire or be acquired.

Most bank facility letters include bank covenants such as interest cover (the number of times interest payable is covered by profit) or operating cash flows to financing costs. If any one of the covenants is breached then under the terms of the covenants this debt may become repayable on demand and should be disclosed as repayable within in one year in the financial statements.

In this instance our advice is to get the bank to waive the breaches. But you must ensure that the waiver is in place before the year end. The best solution is that you get the bank to waive the right to the test the covenant so that there is no breach. Make sure the waiver covers the period looking forward for twelve months as well.

Fraud normally arises where existing controls in the business fail or where controls are not structured properly. The directors are responsible for safeguarding the assets of the business and establishing the controls to achieve this.

If you identify a fraud then you need to consider whether the fraud should be reported to the police, undertake investigation of the circumstances and conclude on actions that are necessary both to deal with the fraud but also to take steps to limit future exposure.

We recommend discussion with your advisers. Consider an external review of the control environment.

You need to have reference to the size and structure of the group. At present all large groups are required to prepare consolidated financial statements unless, in broad terms, that group is itself of a sub-group of a larger group. For accounting periods commencing on or after 6th April 2008 medium sized groups will have to prepare consolidated group accounts unless, again, unless, in broad terms, that group is itself of a sub-group of a larger group. The size limits are as follows:

• turnover must not exceed £6.5m net or £7.8m on a gross basis
• gross assets must not exceed £3.26m net or £3.9m gross basis
• employee numbers must not exceed 250 

(The gross basis is simply adding together each company balance without making any consolidation adjustments – the net basis is after making those adjustments.)

Certain groups, irrespective of their size, are ineligible for the size related exemptions. Typically those groups including a UK public company or a company that is regulated by the Financial Services Authority will be ineligible.

However many businesses choose to present consolidated accounts as they want to show the full scale of the combined business.

Businesses that are about to prepare consolidated accounts for the first time will have to effectively prepare three consolidated balance sheets to enable them to prepare the profit and loss accounts and cash flow statements. Where subsidiaries have been exempt from audit there may also be challenges to ensure that the information being consolidated is reliable. This can be a big exercise. Our advice is to do this early when there is time to consider what the numbers say. Look ahead and see whether a consolidation is needed and act now.

Business plans, budgets and forecasts are only useful if they are integrated systems in your business. The culture of the business is critical. If you, as the leader in your business, do not believe and refer to these tools as part of the ongoing management of the business, then it will be clear to others that they are not effective tools used to manage performance.

Businesses need a plan and direction. Most businesses do have a plan, but some do not manage to translate that plan into a working brief that the employees know and understand. Business plans set out that strategy and set the medium term actions to deliver the strategy. Budgets focus on the short term of usually the next 12 months. Forecasts are focused on managing delivery over the next few months and ensuring cash is ok.

Our view is that these tools are good at helping businesses achieve their strategy. We would recommend that businesses invest time in this process.