How Statutory Audit helps SMEs?

Small and Medium Enterprises are gaining momentum in the past few years and playing a bigger role in developing economies. They are also acting as a driving force for economic growth in many countries. Even with several examples, we can also see that many small and medium enterprises fade off from the industry even before they could enter the growth stage. This might also be because of poor management and weak financial processing. When there is an absence of regular auditing, the risks can be huge which the firms cannot face. 

In India, Small and Medium Enterprises comprise many people and it is considered to be an important sector of any economy. SMEs contribute to over 40% of the GDP Growth in different countries and even with this study result, there are still many things to improve and develop.

Auditing is the process through which an organization will get its financial reports correctly. Once the audit is conducted, it will examine the financial records and report if the same is reflecting the financial position of the company.

Auditing is mandatory for public and large proprietary companies. But Small and Medium Enterprises should have their financial statements audited legally as it will give a clear view of the present status and plan for future business. A statutory Audit is the auditing process that is done legally following all the protocols.

Basically, an audit is done by an independent person who is not attached to the firm in any other way. The auditor must follow the standards that are established by the Auditing and Assurance Standards Boards, which is a federal government body. 

Benefits of Audit to the SME:

#1:-Helps in proper Reconciliation

The process of reconciliation is extremely crucial for any SME as it helps in preventing errors in the financial statement of a business. Moreover, reconciliations help the cash flow and ensure it is properly displayed. SMEs must also be ready to provide the required documents to the auditors of those accounts that might look suspicious.

#2:-Helps in preparing documents prior

Before conducting any audit, the auditors will require the documents for inspection. Although it is mandatory, it will be better if the businesses prepare for the process beforehand and make everything ready. It is a known fact that the auditing process is most stressful and hectic for all those who are involved. Preparing an audit checklist will definitely help the business firms to be ready and it will minimize the time spent by the auditor in getting the documents individually. 

#3:-Trial balance preparation 

Trial Balance is usually prepared periodically by a firm to ensure that the entries are accurate. This is also a frequently requested document by the auditors so keeping it readily available even before the start of auditing will help the firm to a great extent. 

Essentially, audit for Small and Medium Enterprises is a need of the hour as there are many fraudulent activities happening in the country. The audit will help them come out of the areas of mistake and understand where they have been wrong all these years. Along with this, the firms will also get to learn about the latest auditing software and understand its uses in terms of accounting of the firm. 

Therefore, auditing for Small and Medium enterprises cannot be written off. Once an enterprise gets used to frequent audits, its financial statements will be clear and perfect, making the firm’s credibility increase manifold resulting in huge growth and prosperity. Even though the cost might be on the upper side, auditing will be a huge blessing for SMEs in the long run as it protects against possible risks and financial loss.