What is a financial audit? What are the alternatives?
What are the implications of a financial audit for your company's growth? The certification of your accounts by a financial auditor, for example, testifies to the good health of your business. But if a statutory financial audit is compulsory for some companies, how can you gain the confidence of investors when you are a start-up ? What alternative should you use? Let's look at the question together, starting with a better understanding of financial auditing.
Definition of an accounting and financial audit
What is a financial audit?
The term financial audit is often used to describe an accounting and financial audit. Any entity that keeps accounts may be obliged to undertake this procedure in the event of an audit, or may choose to carry out an accounting and financial audit itself, in order to assess its financial risks, for example. This involves examining each accounting operation and assessing the company's financial situation.
Auditing means examining, measuring and assessing: a professional expert, an auditor, often from outside the company for reasons of impartiality, is needed to make a judgement. This professional judgement is an expert opinion based on verifications and benchmarks. Are the company's accounts consistent with those declared? How healthy are the company's finances? How can the fairness and accuracy of the accounts be assessed so that they can be certified? What is the purpose of this financial audit: to reassure shareholders or convince investors? Or both?
Why request a financial audit? What are the objectives?
While auditing is synonymous with the control and/or monitoring of accounts through all the stages of verification and inspection, it provides the company with a critical eye. Auditing can therefore meet a number of challenges.
There are a number of benefits. The accounting and financial audit enables you to :
- detect irregularities
- take stock of what has been observed and check that it complies with the standards,
- identify financial risks, anomalies and their respective nature,
- benefit from feedback from all the players in the company,
- understand how you operate as a whole and take a step back,
- improve your current system,
- have the arguments you need to convince new investors,
- report on your business and, in some cases, reassure shareholders, etc.
The components of a statutory audit
Definition and objectives of a statutory audit
In the case of an external financial audit, the statutory audit procedure is the most common. And with good reason: it is a legal requirement for public limited companies, certain simplified joint stock companies and other entities (associations, limited liability companies, etc.). In these cases, a statutory auditor is appointed for 6 years.
The purpose of a statutory audit is to issue an opinion confirming that the company's accounts accurately reflect its economic situation. As a sworn expert, the statutory auditor refers in particular to the results of the past financial year.
4 key points to remember :
- The statutory auditor is responsible for validating the financial information provided to shareholders,
- He is responsible for certifying the annual accounts,
- the statutory auditor issues a report (to be published by the Registrar) to the shareholders,
- His verification and observation work prevents potential risks.
A legal framework guaranteeing transparency
Article L822-10 of the French Commercial Code requires statutory auditors to be totally independent and, of course, to avoid any conflicts of interest.
The following are therefore prohibited
- any activity detrimental to their independence
- any salaried employment (except for teaching and special cases)
- any direct or indirect commercial activity.
The broad field of accounting and financial auditing (external, financial and statutory) also includes numerous standards that must be complied with, such as :
- international standards such as ISA (International Standards of Auditing)
- French standards, concerning the professional practice of statutory auditors, established by the CNCC (Compagnie Nationale des Commissaires aux Comptes)
- French standards governing the professional practice of chartered accountants, drawn up by the Ordre des Experts Comptables.
How are the accounts certified?
Presentation of the annual accounts, an accounting expertise
The chartered accountant, a sworn professional, carries out a standardised presentation assignment. The accountant's report reflects the consistency of the annual accounts at the accounting level. The company gives him access to its financial and accounting data so that he can examine and qualify them.
As part of a contractual assignment, and through his advisory role :
- it prepares the company's annual accounts in compliance with the laws and regulations in force,
- It provides technical solutions based on the economic and legal context,
- he gives recommendations for adopting certain procedures and tools,
- The chartered accountant can also take care of your tax and social security returns and legal documents.
The work of the chartered accountant creates value for the company.
Certification of accounts by the statutory auditor
The statutory auditor 's mission is a standardised certification of accounts concerning the regularity, sincerity and conformity of the accounts. The statutory auditor's report provides a high level of assurance on the accounts. It is based on the work carried out by the chartered accountant to check the reliability of the accounts.
As a sworn professional, the statutory auditor acts on several levels as part of a legal assignment:
- ensuring compliance with legal and regulatory requirements,
- setting a framework for analysing risks, identifying them and checking that they are present,
- it applies a security approach and reports its opinions and recommendations, both on procedures and on improvements to be made,
- The statutory auditor may also verify other legal points, such as regulated agreements, and provide a management report (...).
The work of the statutory auditor creates confidence in the company.
Which financial auditor should you choose? Internal or external audit?
The internal auditor
The internal auditor is by definition employed by a company, generally a large group, where the resources allow an audit department to be set up. Their job is to ensure that the procedures defined by management are strictly applied, in compliance with the legal framework. The auditor communicates with employees, observes the benefits and sometimes the limitations of the procedures, and reports to management on his or her observations, particularly with regard to organisational controls.
The auditor needs to have a good knowledge of the company to be able to stand back and make recommendations, such as proposing a new work method or organisation to improve productivity, or pointing out malfunctions and recommending alternatives.
The external auditor
Unlike the internal auditor, the external auditor does not work within the company. They are commissioned by the company to carry out a financial audit: the aim is to evaluate the finances and detect any anomalies or weaknesses.
The fact that the external auditor is not part of the company gives him several advantages:
- employees perceive the external auditor as an outsider, not as a "spy" for management,
- the company benefits from a truly external, impartial perspective, with no potential conflicts of interest.
An expert in financial auditing, the external auditor has developed great observation and communication skills: diplomacy is required when intervening in an environment to ask questions, observe and evaluate.
What is the alternative to financial auditing for start-ups?
An audit firm or a financial rating agency?
How do you get out of the costly pattern of audit firms or rating agencies such as Moody's, Fitch, Standard and Poor's, when you're a digital start-up? How do you emerge when these agencies base their assessments primarily on debt? How do you stay agile, mobile and fast when you're a SaaS start-up or digital company?
Aware of the new world in which these companies are evolving, financial rating agency Exaegis is turning the model on its head at every level:
- its analysis tool, the RateAndGo online service, can now assess marketing, marketing, the business model and the stage of financing,
- the rating system considers how the team reacts and manages the company's growth,
- It goes beyond being a monitoring tool and enables short- and medium-term development strategies to be readjusted,
- its rating service is free!
Objective: convince investors
In order to generate financing and investment for digital companies and SaaS start-ups, Exaegis evaluates and restores trust capital. This involves providing precise and reliable indicators of entrepreneurial investment, financial solvency and the ability to honour service commitments over time.
Objective credibility: any start-up can be assessed completely objectively, and on non-financial criteria!
A neutral view is essential to legitimise the strengths and weaknesses of an entrepreneurial project.
A label of trust
A reference in the digital sector since 2013, Exaegis has already assessed more than 200 companies: its TRUXT label is now a guarantee of low risk for all investors. And with good reason: companies that have been awarded the label become eligible for a total security package. It can then guarantee continuity of services to its end customers, even if the SaaS provider or publisher is unable to deliver.
For those who can't get past the "financial audit" stage, Exaegis issues a "valid" passport that enables companies to promote themselves to investors and reassure them. Let's find out how to obtain it...
Evaluate your start-up online for free
Exaegis has invented a free online rating service for investors and start-ups: RateAndGo. Digital start-ups can rate their start-up or project free of charge. Investors and key accounts need to subscribe to receive monthly reports.
Ready to discover this new springboard for investor confidence?
Entrepreneurs looking for financial support have a "starting point" to help them avoid any "false starts": they can assess their business and improve their practices to meet the criteria for seeking funding. Venture capital, loans of honour, seed capital and development capital: start-ups have every chance on their side to raise the funds they need.