What is a financial audit? What are the alternatives?
What does a financial audit have to do with your company's growth? The certification of your accounts by a financial auditor, for example, testifies to the good health of your entity. But how do you win the confidence of investors when you ' re a start-up ? What alternative should you use? Let's take a closer look at the question, starting with a better understanding of financial auditing.
Definition of a 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 gauge its financial risks, for example. The aim is to examine every accounting operation and assess the company's financial situation.
The very word "audit" implies examination, measurement and appraisal: the use of a professional expert, an auditor, often external to the company for reasons of impartiality, is necessary in order to make a judgment. This professional judgement is an expert opinion based on verifications and reference frameworks. Are the company's accounts consistent with those declared? How healthy are the company's finances? How can the sincerity 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 stages of verification and inspection, it also provides the company with a critical eye. In this way, auditing can meet a number of challenges.
There are several main 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 reference framework,
- identify financial risks, anomalies and their respective natures,
- benefit from feedback from all company players,
- gain an overall understanding of your operations and take a step back,
- improve your current system,
- provide arguments 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 widespread. And with good reason: it is a legal requirement for public limited companies, certain private limited companies and other entities (associations, limited liability companies, etc.). In such 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 financial statements,
- the statutory auditor issues a report (to be published by the Registrar's Office) to shareholders,
- His verification and observation work prevents potential risks.
A legal framework guaranteeing transparency
Article L822-10 of the French Commercial Code requires the statutory auditor to be totally independent, and of course to avoid any conflicts of interest.
The following are therefore prohibited
- any activity detrimental to their independence,
- all 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 legal), also presents numerous standards to be respected, such as :
- international standards such as ISA (International Standards of Auditing)
- French standards governing the professional practice of statutory auditors, drawn up 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 financial statements certified?
The presentation of annual financial statements, an accounting expertise
The chartered accountant, a sworn professional, carries out a standardized presentation mission. The accountant's report reflects the consistency of the annual financial statements 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 :
- He prepares the company's annual financial statements in compliance with applicable laws and regulations,
- provides technical solutions based on the economic and legal context,
- providing recommendations for the adoption of certain procedures and tools,
- The chartered accountant can also take charge of your tax and social security returns and legal documents.
The work of a chartered accountant creates value for the company.
Certification of accounts by the statutory auditor
The statutory auditor 's mission is a standardized certification of accounts concerning their regularity, sincerity and conformity with the facts. The statutory auditor's report confers a high level of assurance on the accounts. It is based on the work carried out by the chartered accountant to verify the reliability of the accounts.
As a sworn professional, the statutory auditor intervenes on several levels within the framework of a legal assignment:
- ensuring compliance with legal and regulatory requirements,
- setting a framework for risk analysis, identifying risks and monitoring their presence,
- 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 auditor's work helps to build confidence in the company.
Which financial auditor should I 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 are sufficient to set up an audit department. Their mission is to ensure that procedures defined by management are strictly applied, in compliance with the legal framework. He/she communicates with employees, observes the benefits and sometimes the limits of procedures, and reports to management on his/her observations, particularly with regard to organizational controls.
The auditor needs to have a good knowledge of the company to be able to take the necessary distance, as he can also make his own recommendations, such as proposing a new work method or organization 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 assess the company's 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, rather than as a "spy" for management,
- the company benefits from a genuine outside perspective, impartial and free from potential conflicts of interest.
An expert in financial auditing, the external auditor has developed great observation and communication skills: diplomacy is essential 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 essentially on debt? How do you stay agile, mobile and fast when you're a SaaS startup or digital company?
Aware of the new world in which these companies are evolving, financial rating agency Exaegis reverses the model at every level:
- its analysis tool, the online service RateAndGo, now evaluates sales, marketing, business model and stage of financing,
- the rating system considers how the team reacts to and manages the company's growth,
- It goes beyond 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 startups, Exaegis evaluates and restores trust capital. This involves providing precise, reliable indicators of entrepreneurial investment, financial solvency and the ability to honor service commitments over time.
Credibility objective: any start-up can be evaluated totally objectively, and on non-financial criteria!
A neutral eye is essential to legitimize the strengths and weaknesses of an entrepreneurial project.
A label of trust
A reference in the digital sector since 2013, Exaegis has already assessed over 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. They can then guarantee continuity of service to their 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, enabling companies to make themselves known to investors, and to reassure them. Let's see how to get it...
Evaluate your startup online for free
Exaegis has invented a free online rating service for investors and startups: RateAndGo. Digital start-ups can rate their startup or project free of charge. Investors and key accounts must subscribe to receive monthly reports.
Ready to discover this new springboard for investor confidence?
Entrepreneurs looking for financial support have a "starting box" to avoid any "false starts": they can evaluate their business and improve their practices to meet the criteria for seeking funding. Venture capital, honor loans, seed capital and development capital: the start-up has every chance on its side to raise the funds it needs.