Before explaining the benefits of auditing, an interesting fact about hiring an external auditor: Law 6.404/76. If the entrepreneur has plans to make the company public, external audit is mandatory. The same applies to merger, incorporation, spin-off or consolidation processes, in accordance with this law and also Law 6.385/76.
In both cases, the main point that justifies the carrying out the external audit is the transparency and credibility of the business. For investments, receiving loans and other similar actions, the business owner needs to prove the solidity of his business.
The benefits of auditing in small businesses
Auditing in small companies may be a little different from the process used in large companies, but the objective is the same: to guarantee the financial and accounting integrity of the company. The small business audit process often begins with evaluating the company's internal controls, including accounting and financial policies and procedures. Auditing may then perform tests on samples of financial and accounting transactions to verify the accuracy of records and compliance with accounting standards.
Auditing since the company's creation can bring several advantages, including the identification of flaws and financial problems since the company's creation, allowing the company to correct these problems before they become bigger and more difficult to resolve. Auditing can also help establish appropriate internal processes and controls from the outset, ensuring that the company operates efficiently and effectively, including improving the company's transparency and credibility.
Furthermore, auditing small businesses can help with business continuity, as the company will be prepared to face any type of financial problem that may arise. The audit can also help identify opportunities for improvement and growth for the company, allowing it to expand sustainably and with less risk.
Research shows that auditing can be especially beneficial for smaller companies. According to research conducted by the American Institute of CPAs, companies that audit are more likely to survive and grow than those that do not audit. Another survey carried out by the Brazilian Institute of Corporate Governance (IBGC) showed that smaller companies that carry out audits have better financial performance than those that do not carry out audits.
The audit process in small companies can bring several advantages, such as identifying flaws and financial problems, establishing adequate processes and internal controls and improving the company's transparency and credibility. Auditing can also help with business continuity and identifying growth opportunities, being especially beneficial for smaller companies.
Proof of transparency and solidity of the business
As previously mentioned, one of the main points for carrying out the external audit is proof of the numbers presented. The auditor's approval before the market supports what the company showed in its reports. It is a seal of authenticity that brings credibility to the company. On the other hand, if the numbers are wrong, the auditor will be able to point out this mistake. This way, employees will be able to correct the error and arrive at the correct numbers. It is precisely this impartiality of the audit in small companies in the commitment to the truth that reassures investors and partners.
– Organization of flows
Through the auditor's guidance, the entrepreneur and his team will be able to perceive better workflows to organize themselves. It is often common for smaller companies to not yet have well-defined methods already established for their procedures. The audit of small companies, through its analysis and data collection, will be able to highlight to the responsible area what is important and the best way to present the information to investors, partners and other bodies.
– Risk detection
Another great advantage of auditing small companies is the possibility of detecting risks at an early stage. After collecting the data, if there is a problem, the entrepreneur and his employees will be able to adapt the situation quickly. This is beneficial for several reasons, including the fact that it does not build more numbers based on erroneous metrics that can be misinterpreted.
While expectations for good corporate governance in the capital markets are clearly understood and confirmed through strong regulatory oversight, the government's role in overseeing small and medium-sized entities (SMEs) is less clear.
The goal of reducing “red tape” and “regulatory burden” is well-founded when used to remove a “one-size-fits-all” approach. Growing entities establish good management practices in the natural evolution of how they become economically significant.
International Auditing Standards
International Standards on Auditing require an in-depth examination of an entity and its environment, including the entity's control environment and internal control. It is necessary to evaluate how management identifies and mitigates risk as part of the audit risk assessment. A annual external audit for a small or medium-sized entity provides an opportunity for an owner-manager to receive external advice on the accuracy of the financial system, information they use for decision-making purposes, including how transactions are captured, measured, recorded and evaluated .
As smaller companies rarely employ in-house experts, external auditing is often a cost-effective trigger for identifying advice where experts may be needed. Consequently, external auditing plays an important role in a growing business, and responds to the increasing level of interest from external stakeholders in an entity's financial position.
A regulatory approach that promotes external auditing not only reduces the risk of business failure, but also prepares small entities with an understanding of how to develop management practices that allow them to seize opportunities while mitigating risk.
Tax recovery and changes in legislation
On certain occasions, your business can count on the monetization of tax credits. Tax legislation is often changed by factors such as the creation of new provisional measures or changes to previously established laws. Changes may also occur in administrative and/or judicial decisions relating to a market segment. Within this context, companies are entitled to reimbursements, refunds or even compensation for taxes paid unduly.
The tax recovery process is something that occurs on different occasions and circumstances, therefore, business owners and directors need to be aware of changes in their sectors so as not to fail to claim the credit. In many cases, tax consultancy is the best suggestion to make sure that your company has its tax accounts in order, whether due to payment of taxes or in case you are entitled to a possible tax recovery.
There are countless tasks to keep your company operating properly. Although you will need to be involved in many of the day-to-day responsibilities of your business, it may be advantageous to outsource bookkeeping and accounting to an accounting firm (accounting firm).
Accounting Services for Small Businesses
Bookkeeping and accounting can take up a significant amount of a business owner's time. Trying to balance your business's accounting with all your other tasks can be a challenge. Some business owners try to solve these problems by hiring an in-house accountant, which can be expensive, or purchasing electronic accounting software, which can exacerbate problems due to the learning curve involved in using many of these programs. Instead of getting bogged down in a sea of numbers, consider the freedom you can have when you take advantage of an accounting firm's specialized small business bookkeeping services.
It offers exceptional outsourced bookkeeping services for small businesses as it specializes in helping small and medium-sized businesses achieve financial profitability. The accounting firm could be just what you need to achieve your business goals of growth and debt reduction. The accounting team will never see your business as just a balance sheet with various debits and credits. Instead, they assign you a certified accountant who will work with you to perform all of the day-to-day accounting routines necessary for your business operation.
With small business accounting services, you can turn your attention to other work that needs to be done. Don't worry, because you will always have access to the financial data you need to make important decisions for your company. It provides up-to-date financial reports so you don't have to guess about your company's financial situation. Effective accounting services for small businesses should provide the business owner with access to profits, cash position, cash flow forecasts, income statements, accounts receivable and payable reports, and current balance sheets. Access to this relevant information ensures that you never operate your business blindly. You will always be in a position of knowledge, so you can avoid crises and make prudent plans for the future.
Bookkeeping and financial statements applicable to small businesses
In addition to auditing small companies, small and medium-sized companies are obliged to maintain their accounting records in accordance with current legislation. Such a requirement is much more flexible than that applicable to large regulated or publicly traded companies. Still, there is a clear lack of understanding by the market in general about the exceptions applicable to micro and small companies and which annual financial statements these companies must present.
With the advent of NBC TG 1000, the CPC for small and medium-sized companies, in 2009, there was a movement in the market in order to assimilate the changes brought by the regulations, which, according to the CFC, should be applied to all companies, regardless of of the port.
However, with the difficulty of Microenterprises (MEI) and Small Businesses (EPP) in meeting all the demands arising from the NBC TG 1000, a more flexible model, the ITG 1000, was developed by the CFC in December 2012, which established criteria and simplified procedures for entities defined as “Microenterprises and Small Businesses” based on the criteria defined by Article 966 of Law No. 10.406/02.
Furthermore, income tax legislation also has specific requirements for financial statements and bookkeeping, such as DLPA, which is not included as mandatory in ITG 1000.
Law 10.406/02 itself in its Article 1.179. determines that the entrepreneur and the business company are obliged to follow an accounting system, mechanized or not, based on the uniform recording of their books, in correspondence with the respective documentation, and to prepare annually the balance sheet and the economic result, but exempts rural producers and small entrepreneurs, who must carry out activities in an artisanal way, whose capital fully employed in the activity is not more than twenty times the highest monthly salary in force in the country and their annual gross income is not more than one hundred times the highest monthly salary in the country.
Therefore, the legislation causes a certain amount of confusion between tax bookkeeping, which aims to meet the needs of bodies supervising tax relations, for example, the issuance of tax calculation books, and accounting bookkeeping, which is a requirement of the State, endowed with the function of regulating the activities of the entrepreneur, the business company and business acts. What does art. 1.193 of CCB-02 says, is that tax inspection bodies may not request some accounting books, however, to fulfill the civic obligations established by Law No. 10.406/02, the company is obliged to have accounting records.
Therefore, Art. 1.191 also determines that the judge may only authorize the full display of books and records when necessary to resolve issues relating to succession, community or partnership, administration or management for the account of others, or in case of bankruptcy .
§ 1 The judge or court hearing the precautionary measure or action may, upon request or ex officio, order that the books of either party, or both, be examined in the presence of the entrepreneur or the business company to which they belong, or of people appointed by them, to extract from them what is relevant to the question.
Art. 1.192. If the presentation of the books is refused, in the cases of the preceding article, they will be seized judicially and, in its § 1, what is alleged by the opposing party will be considered true to be proven by the books.
In other words, according to Law 10.406/02, which established the New Brazilian Civil Code, the entrepreneur and the business company must prepare accounting records, as it is a civic duty, and a requirement of Commercial or Business Law. So that you can have the necessary documents to serve as evidence in court, as accounting has public faith and to maintain an effective tool in asset and performance management.
Please contact TATICCA Allinial Global Brazil, which operates throughout Brazil and globally, with integrated audit services, accounting, taxes, corporate finance, technology, risk advisory, business consultancy and training. For more information, visit www.taticca.com.br or email taticca@taticca.com.br and find out more. Our company has professionals with extensive experience in the market and has certified methodologies for carrying out activities.