Rising inflation has dominated the headlines in recent months. In light of the current economic situation, businesses are having to remain diligent and act accordingly. One approach that can help to steer this is financial auditing to help identify and correct financial errors. Here’s how it can help.
How inflation can pose problems for businesses’ performance
Inflation can cause a number of issues for businesses. It can reduce overall profits, resulting in some companies choosing to sell products for more money while costs remain the same. This can compromise customer experience and value for money. There’s also an expectation to increase wages in line with inflation. This is done to help employees address the rising cost of living and consumer price inflation. In a purely economic sense, this is another cost to the business.
Another restriction is that rising inflation can make it more difficult to borrow money. Lenders will take inflation into account when securing the loan rates, which means that if you borrow money, you’ll likely end up paying back significantly more.
With all of these factors coming into play, businesses need to stay on top of inflation rates so that they can adjust their actions appropriately.
5 benefits of financial auditing
Financial auditing refers to the investigation of a company’s finances by an external and independent party. This is done by a professional financial auditing provider. They delve into the depths of a business’s financial statements to showcase a true reflection in accordance with the relevant financial reporting framework. They can be especially useful when addressing rising inflation rates.
- You can act accordingly based on findings: New-found knowledge about the company’s financial situation means senior bodies can act accordingly. For example, they may find that they are in a comfortable position to issue reasonable staff pay rises, which in turn can help to reduce staff turnover.
- Audited accounts give you credibility: This process can give a company credit due to validation from another, reputable party. Having audited accounts means everything is compliant and confirms an accurate picture of the company’s financial situation.
- Weaknesses can be identified: The reality of a financial audit is that it can identify weaknesses as much as it can identify strengths. As a result, this means that new strategies can be created in order to improve the financial state of the business during these more precarious times.
- It can provide clarity to shareholders especially: Many businesses are run on behalf of shareholders who lack involvement in the operations side. Financial auditing can provide an impartial assessment of a company’s finances, therefore giving these shareholders clarity knowing that everything is being handled correctly. Alternatively, it could signal a need for intervention.
- It can help to reduce fraud risk: Consolidation from a financial audit can mean that fraudulent actions or risks can be identified, allowing a company to address this and apply internal controls to help prevent this in future.