According to the Accounting Act, accounting entities are classified into three size categories: micro, small, and large entities.
Note: An entity is classified into a particular category if it meets at least two of the above conditions.
Even if an entity qualifies as a small accounting entity under the Accounting Act, it may still be subject to a statutory audit. This discrepancy arises if the entity meets the criteria for mandatory financial statement verification by an auditor, for example, due to higher turnover or employee numbers exceeding the legal thresholds for a mandatory audit.
Mandatory Audit Requirements
According to the Accounting Act, financial statements must be audited in the following cases:
Business companies and cooperatives are required to have their regular or extraordinary individual financial statements audited if, as of the balance sheet date and for the previous financial year, they meet at least two of the following conditions:
- Total assets exceed 4,000,000 EUR
- Net turnover exceeds 8,000,000 EUR
- Average number of employees exceeds 50
For other micro and small entities that do not meet the criteria for a mandatory audit, an audit can still be conducted voluntarily.
Practical Reasons and Benefits of Voluntary Audit for Small Companies
Increasing Credibility and Transparency
An audit provides independent verification of financial statements, which increases the company’s credibility with investors, creditors, and business partners. It helps to better understand the financial situation of the company, simplifying decision-making and planning for further steps. Transparency in financial management can help in acquiring new business opportunities or financing. Thanks to the verification of financial statements by an auditor, the company can become more creditworthy to banks in the process of obtaining financing.
Fraud and Error Prevention
Auditors identify discrepancies, fraud, or accounting errors that may be invisible to the company’s internal control mechanisms. In this way, the company can prevent financial losses or serious problems in the future.
Improvement of Management and Control
Auditors provide recommendations for improving internal controls and processes not only in the area of accounting, which can contribute to more efficient management and financial planning.
Increasing Competitiveness
Companies that undergo a voluntary audit can gain a competitive advantage. The trust created by transparent and verified accounting can attract clients and partners who make decisions based on financial stability.
Support for Growth and Development
If a company plans expansion or more complex business transactions, an audit can play a key role. It helps ensure that the company is prepared for bigger steps and that its financial data provides a stable foundation for successful business decisions.
Ensuring Compliance with Laws and Regulations
Auditors verify whether the company correctly applies current legislative requirements and identify areas where internal processes can be improved. In a dynamic business environment, this is crucial for long-term sustainability.
A voluntary audit can be a valuable tool for improving efficiency and competitiveness in micro and small companies. For small accounting entities, it is an investment that can pay off in the form of long-term growth and stability.
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