A recurring question about the role of auditing in small businesses is part of the routine of many entrepreneurs. Do I really need to do an external audit of my company? Generally linked to the daily logistics of your company, they usually play many roles: helping the financier, referring HR candidates, talking to suppliers, meeting with sales, and a wide range of other activities.The main point is the emergence of questions such as: — My business is a company. Is an audit necessary? — How does auditing help? — Is it expensive to hire an external auditor? 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, Is external auditing mandatory . The same is true for merger, incorporation, division or consolidation processes, in accordance with this law and also Law 6,385/76.
In both cases, the main point that justifies Carrying out the external audit It's the transparency and credibility of the business. For investments, receiving loans, and other such actions, the business owner needs to prove the soundness of his business.
The benefits of auditing in small businesses Auditing in small companies may be slightly 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 auditing process in small businesses generally begins with the assessment of the company's internal controls, including accounting and financial policies and procedures. Then, auditing can perform tests on samples of financial and accounting transactions to verify the accuracy of the records and compliance with accounting standards.
Auditing since the creation of the company can bring several advantages, including the identification of flaws and financial problems since the creation of the company, allowing the company to correct these problems before they become larger and more difficult to solve. Auditing can also help establish adequate internal processes and controls from the start, ensuring that the company operates efficiently and effectively, including improving the company's transparency and credibility.
In addition, auditing in small businesses can help with business continuity, since the company will be prepared to face any type of financial problem that may arise. Auditing can also help identify opportunities for improvement and growth for the company, allowing it to expand sustainably and with lower 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 don't audit. Other research conducted by the Brazilian Institute of Corporate Governance (IBGC) showed that smaller companies that carry out audits have better financial performance than those that don't carry out audits.
The auditing process in small businesses can bring several advantages, such as identifying flaws and financial problems, establishing adequate internal processes and controls, and improving the company's transparency and credibility. Auditing can also help with business continuity and identification of growth opportunities, and is especially beneficial for smaller companies.
Proof of transparency and soundness of the business As highlighted earlier, one of the main points for the realization of external auditing It is the proof of the numbers presented. The auditor's approval before the market supports what the company showed in its reports. It's a seal of authenticity that brings credibility to the company. On the other hand, if the numbers are wrong, the auditor may point out this mistake. That way, employees will be able to correct the error and arrive at the correct numbers. It is precisely this impartiality of auditing small companies in its 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 see 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 auditing of small companies, through its analysis and data collection, will be able to highlight to the responsible area what is important and what is the best way to present the information to investors, partners and other bodies.
— Risk detection Another great advantage of auditing in small businesses is the possibility of detecting risks at an early stage. After collecting the data, if there are any problems, the entrepreneur and his employees will be able to adapt the situation quickly. This is beneficial for several reasons, including the fact of not building more numbers on top of erroneous metrics that can be misinterpreted.
While expectations for good corporate governance in the capital market 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 valid 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 Auditing Standards 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 the way in which management identifies and mitigates risk as part of the audit risk assessment. A Annual External Audit for a small or medium-sized entity, it provides an opportunity for an owner-manager to receive an external opinion about the accuracy of the financial system, information that they use for decision-making purposes, including the way in which transactions are captured, measured, recorded, and evaluated.
Because 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 growing level of interest of external stakeholders in an entity's financial position.
A regulatory approach that promotes external auditing not only reduces the risk of a failed business, but also equips 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 may count on the monetization of tax credits. Tax legislation is often changed by factors such as the creation of new interim measures or changes to previously established laws. Changes may also occur in administrative and/or judicial decisions relating to a segment of the market. Within this context, companies are entitled to refunds, refunds, or even compensation for improperly paid taxes.
The tax recovery process is something that occurs on different occasions and circumstances, so entrepreneurs and directors need to be aware of changes in their sectors so as not to stop claiming the credit. In several cases, tax advice is the best suggestion to make sure that your company has its tax accounts in order, either with the proper payment of taxes or in case you are entitled to a possible tax recovery.
There are countless tasks to keep your company operating properly. While you need to engage in many of the daily responsibilities of your business, it may be advantageous to outsource bookkeeping and bookkeeping to an accounting firm (accounting firm).
Small Business Accounting Services Bookkeeping and bookkeeping can take up a significant amount of the business owner's time. Trying to balance your company's accounting with all 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 by purchasing electronic accounting software, which can compound problems due to the learning curve involved in using many of these programs. Rather than getting mired in a sea of numbers, consider the freedom you can have when taking advantage of the specialized small business bookkeeping services of an accounting firm.
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 may be just what you need to achieve your business growth and debt reduction goals. The accounting team will never see your business as just a balance sheet with multiple debits and credits. Instead, they assign you a certified accountant who will work with you to carry out the entire day-to-day accounting routine 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'll 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 your company's financial situation. Effective small business accounting services must 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 businesses, small and medium-sized businesses are required to maintain their bookkeeping in accordance with current legislation. This requirement is much more flexible than that applicable to large regulated or publicly traded companies. Even so, there is a clear lack of understanding in the general market about the exceptions applicable to micro and small companies and what annual financial statements these companies must submit.
With the advent of NBC TG 1000, the CPC for small and medium-sized companies, in 2009, there was a movement in the market to assimilate the changes brought about by the regulations, which even, according to the CFC, should be applied to all companies, regardless of size.
However, with the difficulty of Microenterprises (MEI) and Small Enterprises (EPP) in meeting all the demands deriving from the NBC TG 1000, a more flexible model, the ITG 1000, was developed by the CFC in December 2012, which established simplified criteria and procedures for entities defined as “Microenterprise and Small Business” based on the criteria defined by Art. 966 of Law No. 10,406/02.
In addition, income tax legislation also has specific requirements for financial statements and bookkeeping, such as the DLPA, which is not included as mandatory in the ITG 1000.
Law 10,406/02 itself, in its Art. 1,179, determines that the entrepreneur and the business firm are obliged to follow an accounting system, mechanized or not, based on the uniform bookkeeping of their books, in correspondence with the respective documentation, and to draw up the balance sheet and the economic result annually, but exempts rural producers and small entrepreneurs, who must carry out activities in an artisanal way, whose capital fully employed in the activity does not exceed twenty times the highest monthly wage in force in the country and its annual Gross revenue does not exceed one hundred times the highest monthly salary in force in the country.
Then, the legislation causes some confusion between tax bookkeeping, which aims to meet the needs of tax relations supervisory bodies, for example, the issuance of tax calculation books and bookkeeping, which is a requirement of the State, endowed with the function of regulating the activities of the entrepreneur, the business corporation, and the business acts. What article 1,193 of CCB-02 says is that tax supervisory bodies may not request certain accounting books, but in order to comply with the civil obligations established by Law No. 10,406/02, the company is required to have bookkeeping.
Thus, Article 1,191 also determines that the judge may only authorize the full exhibition of books and bookkeeping papers when necessary to resolve issues related to succession, communion or partnership, administration or management of someone else's account, or in the event of bankruptcy.
Paragraph 1 The judge or court that hears a precautionary measure or action may, upon request or letter, order that the books of either party, or both, be examined in the presence of the businessman or business company to which they belong, or of persons appointed by them, in order to extract from them what is of interest to the matter.
Art. 1.192. If the presentation of the books is refused, in the case of the previous article, they will be seized in court and, in its first paragraph, the allegations made by the opposing party to be proven by the books will be considered true.
In other words, according to Law 10,406/02, which established the New Brazilian Civil Code, the entrepreneur and the business firm must prepare bookkeeping, as they are 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, since accounting is endowed with public faith and to maintain an effective asset and performance management tool.
Get in touch with TACTICS | Allinial Global Brazil , which operates throughout Brazil and globally, with integrated auditing services, accounting , taxes, corporate finance, technology, risk advisory, business consulting, and training. For more information, visit www.taticca.com.br or email taticca@taticca.com.br and learn more. Our company has professionals with extensive experience in the market and has certified methodologies for carrying out activities.
