Unaudited financial statements are those which have not been audited by a certified or chartered accountant. They may well have been diligently prepared from a company’s books and be a true reflection of the state of its accounts, but they have not been subject to any external verification procedures. As such, customers, investors and tax inspectors might all have concerns about unaudited financial statements.
Some small firms are exempt from the requirement to audit their accounts and might produce unaudited financial statements. Partnerships and sole traders do not have to have their accounts audited, and firms that meet the small firms audit exemption can also use unaudited accounts. To qualify for the small firms exemption, a firm must show either an annual turnover of less than £6.5m or a balance sheet for the year of less than £3.26m, and it must not be a MiFID firm.
Benefits of an audit
There are good reasons for financial statements to be audited. A audit can detect fraud or error in a company’s accounts and clarify whether the business is meeting its obligations under tax and employment legislation. Auditing accounts can highlight weaknesses in financial systems and offer solutions to cut costs and improve efficiency.
Audited financial statements increase confidence in a company. If a business is to be sold, a prospective buyer will prefer to see verified accounts and customers will have greater confidence in companies with audited finances. HMRC tax inspectors prefer tax returns supported by audited accounts and are less likely to impose penalties for errors identified prior to submission. Suppliers may also give better terms to businesses that have been audited.
Using unaudited financial statements
Unaudited financial statements can be useful at times. They can help a business get a picture of its financial health and might assist if a company is preparing a loan application. Interim accounts can also be produced for partners or suppliers to maintain a level of confidence in a business.