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Over recent years there has been an increase in the amount of scrutiny companies and their directors come under. Investors are keen to avoid dealing with poorly managed businesses, while regulators want to ensure a level playing field. With this in mind we examine why companies should undergo a legal audit.
What is a Legal Audit?
Audits are conducted by a firm of legal experts such as RSM International and the aim of an audit is to verify a company’s financial statements. To do this the auditors will need to meet with the company directors to get a detailed overview of the business and how it is operating.
The audit is a company health check of sorts and will examine things such as the company accounts, the way invoices are dealt with and employee contracts. The end result is a report that offers a snapshot of how the company is performing.
The Benefits of Undergoing a Legal Audit
The benefits of undergoing a legal audit are wide ranging. In the first instance, it may serve to save the company money, by exposing any inefficiencies or anomalies in the way financial procedures are carried out. This could include when the company accounts need to be filed, something that can incur stiff penalties if not done in a timely manner.
Perhaps more significantly, however, is the message that the results of a legal audit can send to customers, clients, investors and other stakeholders. A positive legal audit report can help to encourage the development and growth of the company because it is testimony to the wellbeing of the business.
The recommendations in a legal audit report may also help to streamline a company’s day to day operations and thus lead to greater productivity or an improved service.
Auditors will not actively interfere with the way the company is being run and are bound not to alter any of the documentation that they are there to evaluate.
The Drawbacks of Not Having a Legal Audit
Companies who choose not to commission a legal audit may find that they experience a range of problems. The most significant of these is that they are unable to verify their financial statements and this can cause a loss in confidence from investors – businesses may find that they struggle to scale or to develop new products or services.
There may also be other significant drawbacks such as continued operational inefficiencies that put a continual strain on the company.
A legal audit is a sure fire way to pursue a proactive approach to running a company and securing its ongoing success.