How Audit Can be Made Simple for businesses
Do you panic when you hear that five-letter word? You might think an audit is the last thing your business needs, but rest assured they can be made simple. Regular audits can be more like a routine maintenance check just like you do your car’s MOT or a boiler service.
Do you bite your nails before your entity’s external audit each year? Do your staff start showing signs of anxiety in anticipation of the auditors walking in the door?
If this sounds like your situation, take a deep breath. Having an external auditor verify your financial statements will add credibility to the company for the wider market. If you’re an owner that’s looking to raise funds for growth or are beginning to plan your exit via a business sale, then having audited accounts will make it more likely that you will achieve your goals.
Here are four tips for making the audit experience run more smoothly for you and your auditors.
1. Plan for Audit and be ready
I think this famous quote by Benjamin Franklin is applicable to audits.
“If you fail to plan, you are planning to fail.”
Audit is all about planning and making sure that big ticket items are organised before the start of the field work or even before the year end e.g. Stock take etc.
Make sure that you have an audit planning meeting, and you discuss the list of items auditors want, timelines for start of audit field work, time for audit close out meeting etc. Let your auditor know straight away if you won’t be ready by the agreed time or struggling to get things ready. If you have any critical judgements or estimates, make sure that you discuss your approach with your auditor beforehand and agree the methodology.
Do discuss openly with auditors the risk assessment and controls you have in place to mitigate those risks. Some of the common risks are: Going concern, Revenue recognition, Management override of controls etc.
Because unpredictability is a required element in the audit, you’ll also need to produce some information on the spot, such as supporting documents for specific expense and revenue items, journal entry support, or grantor or program reports. But you can still prepare by establishing files during the year to collect the information you may need.
2. The Auditor is not your accountant
Your expectations of the audit should mirror your engagement letter with the auditing firm. It will spell out what the audit will accomplish and your responsibilities.
Auditors used to do accounting “clean-up” work for their clients during the audit, such as preparing year-end journal entries, fixed asset schedules, and various prepaid expense and accrued liability analyses. But today’s professional standards draw a clear line between accounting and auditing services, and your auditor must stay independent of your accounting processes, and as a result may be limited as to what he or she can do.
If there are accounting tasks you can’t do internally due to a lack of expertise, consider talking to your auditor in advance so that they can arrange a different team or recommend a different firm to handle them. But if you’re fully capable and “own” the process, you can engage your audit firm to assist with certain analysis and adjustment information outside of the audit.
3. Control deficiencies
Your auditor will apply auditing standards during the audit. They will communicate internal control weaknesses identified during the audit, define deficiencies in internal control and other “material weaknesses” and “significant deficiencies.”
The auditor, for example, will look to see if:
- there is segregation of duties in handling cash receipts, reviewing and authorising cash disbursements and sales,
- there is a different person authorizing contracts and their payment, and
- reconciliations are prepared, reviewed and approved on regular intervals.
After reviewing the risk and internal control information you’ve assembled, your auditor could determine there is a “significant deficiency” or the more serious “material weakness.”
For any matter identified in the auditor’s letter, prepare a written response including whether you have taken or intend to take any action in response to the finding. This is important to the audit committee and board as they oversee the audit and the overall system of checks and balances.
4. Stay in touch
Don’t let the annual audit be the only time you talk to your auditor. If you save up all your questions, it’s likely to extend the length of the audit.
Also ask if there are new accounting pronouncements or changes for the year so you and the board aren’t surprised after year end. Be proactive in understanding the new guidance and its impact on your next audit and future financial reporting.
You may not realise it, but there are many potential users of the financial statements or accounts of your business, and they include
- HMRC or any relevant tax authorities
- Insurance companies
- Investors (current and prospective)
- Suppliers (checks may be done before extending credit)
- Donors (usually for not- for- profit organisations)
To perform these audits, here at Crouchers, we have a team of experienced and qualified audit professionals, with knowledge from different industry backgrounds. This vast knowledge has been accumulated over years of working with businesses and allows us to deliver a quality engagement adding value to you and your business.
We consider each business to be unique, and therefore we invite you to contact us and arrange a meeting to discuss your needs, and requirements. There are various engagement types, and we will be able to recommend a suitable engagement based on the size and needs of your business.
For more details and to discuss an Audit for your business, with no obligation, check out our website for key contacts.