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The value-add of an audit for contracting businesses

We underscore the crucial role of audit in the construction and contracting industry, beyond the context of Carillion, but delving into the tightening of audit standards in the UK and highlighting the importance of thorough audits for assessing business viability.

To set the scene for audit in the world of construction and contracting, we cast our minds back to Carillion. This construction giant, unfortunately, went into administration in 2018, having raked up debts of more than seven billion pounds when it went bust. This crash catalysed the lawsuit against their long-standing auditors, KPMG, claiming more than one million pounds in damages. This lawsuit included the sum Carillion had paid out in dividends to its shareholders and advisory fees and losses encountered as the group continued to trade.

This incident caused a chain reaction from the Financial Reporting Council, tightening their audit standards in the wake of several corporate failures in which auditors had failed to flag concerns regarding the business' viability. Since this, UK auditors have needed to abide by significantly stronger requirements than those currently required by international standards, adding to the complexity of audit in this realm of work. This incident highlighted the sector's risk level and the importance of a well-rounded audit.

In headline terms, an audit for construction and contracting businesses provides independent challenge and verification to a company's management. Acting from an objective, third party and informed view of their accounting policies to comfort users of financial statements in the validity of what they're reading. Which, in turn, is the value-add of a fair and rounded audit for a contracting business.

Auditing in the contracting space is unstable, reflecting the changes in the economic world regarding inflation, increasing interest rates and changes in laws and regulations, making audit all the more challenging in an already risk-centric sector. So, how can you ensure your audit is up to scratch?

About the author

Phil Westerman

+44 (0)20 7556 1299
westermanp@buzzacott.co.uk

What makes a valuable audit?

A valuable audit will operate from the standpoint of marrying their understanding of accounting standards with their commercial knowledge and managing the contractors' understanding. Outsourcing your audit requirements lessens the risk of mistaking financial data, which management bias can cause. Internal audits are at more risk of discrepancies in economic data due to, for instance, over-reporting revenues or under-reporting costs.

External auditors are inclined to ask more questions to a broader range of people across the business to gain a holistic and consistent view of how the business operates and provide a better picture of the company's financial status. We approach audits with an understanding of the sector and its risks, acknowledging the room for error and the importance of representing our clients' businesses in an authentic and fair light. In our experience, the best audits are carried out when our clients are on board with the process and engaged in the steps to ensure the utmost accuracy.

How can we help?

We audit construction and contracting businesses like yours across the UK and globally, bringing plenty of relevant experience to help everything run smoothly. During our audits, we offer detailed feedback on your systems and controls - feedback you can act on because it's designed to suit and add lasting value to your organisation.

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