Minor errors and oversights can be costly, especially when they appear in financial statements. Fortunately, they can be detected and corrected. However, there are cases when an audit is mandatory. According to the law, certain companies are required to conduct an audit of their accounting records. When is it required and what specific obligations does it entail?
Companies conduct audits of their accounting records to check or confirm their accuracy. When there is a need or desire for such verification, an external audit firm carefully reviews all accounting documentation, tax settlements, and social insurance records. This verification helps identify errors and highlight areas needing improvement. Additionally, it can provide suggestions for corrective actions and emphasize warnings on which elements need closer attention to avoid similar mistakes in the future. Such an audit is voluntary and optional.
When is an Audit Mandatory?
A mandatory audit has specific requirements and deadlines regulated by the Accounting Act. Article 64, paragraph 1 of this act specifies which companies and institutions are obliged to verify the accuracy and reliability of their accounting records. This includes banks, cooperative savings and credit unions, financial and insurance institutions, auction companies, and acquiring and newly established companies. Regardless of other factors, the status of these entities mandates an annual audit.
Besides these specific types of activities, mandatory audits from a legal standpoint also apply to other companies. The law imposes this obligation on companies that meet 2 out of 3 specified conditions: the average annual employment exceeds 50 full-time employees, total assets exceed 2.5 million euros, and net revenue from sales of goods and products exceeds 5 million euros. If a company meets 2 or all of these conditions in the previous fiscal year, it must conduct an external audit.
How Does a Mandatory Audit Proceed?
The process of a mandatory audit must meet the conditions specified by the act. First, it must be conducted by a certified auditor qualified to audit financial statements. The audit firm is selected by the body approving the financial statements of the entity. The initial contract must be signed for no less than 2 years, with the possibility of extension for subsequent cycles.
Secondly, the certified auditor must be given access to accounting records, including summaries of turnovers and balances, accounting entries, and all documents forming the basis of those entries.
Thirdly, strict deadlines must be observed. The financial statements must be made available no later than 15 days before the shareholders’ meeting or the general meeting of members. The financial statement itself must be prepared within 3 months of the end of the fiscal year and approved no later than 6 months after the end of the fiscal year.
Step-by-Step Process of a Mandatory Audit
The mandatory audit process begins with a resolution adopted by the management body regarding the selection of the audit firm. After signing the appropriate contract, all necessary documents, including company agreements and credit agreements, are compiled, and a further action plan is created. The next step for the certified auditor is the inventory of assets. After this, the actual audit takes place. This stage can currently be conducted on-site or remotely, and documents can be in electronic or paper form.
It is crucial to have professional accounting support during the audit process. When choosing an accounting service provider, we advise checking how the accounting support will look during the audit. At BPiON, we support our clients during all types of audits, both internal group audits and statutory audits.
