Preparing for an audit is a stressful, demanding, and time-consuming task. However, it holds great significance in keeping your business or organization transparent and compliant with national and international business standards.
Companies must understand and become a master at preparing for a business audit. Whether internal or external, an audit is the independent scrutiny of financial information of a business of any size and nature. The internal audit refers to creating an audit team among the internal employees, whereas third-party audit firms perform an external audit. Government audits also occur where an official entity audits the firm’s financial statements. Out of the three, an external audit is the most reliable source to get your financial records verified.
Regardless of what audit you intend to perform, proper planning is key to being efficient and accurate. To simplify it for you, we’ve jotted down some critical and vital tips on how to prepare for an audit:
- Plan things beforehand
Dedicate extra time to year-end closures so that you are prepared for the audit. It will ensure effective communication with the audit team. Appropriate arrangement and exact vision help to diminish nervousness and obstructions. Consider the audit process as a long-term process by being prepared with proper documentation such as schedules, data, and reconciliations beforehand. The most important task is to assign an employee to the audit team for seamless collaboration, prevent delay, and keep the communication channel open.
- Beware of accounting standards
Accounting policies, jurisdictive domains, and government regulations that affect the auditing process are frequently updated. And being unaware of these changes can cause a hindrance in the whole process. As a stakeholder, you should be aware of all the standards that your business might have to pass, and consequently, prepare accordingly. For example, updating essential financial documents according to changes in the IFRS. Or reorganizing the charter of accounts to implement new standards and avoiding a certain number of penalties.
At this point, ensure that you have a skilled internal resource on-board to smooth out the process. Someone with adequate experience or qualifications, such as an accountant online degree, should suffice.
- Analyze change in business activities
Before beginning an audit, you must analyze whether there is any change in your business activities. For example, the organization has started a new venture or received a substantial amount of accounts receivable. Any changes in organizational structure and leadership need to be taken into account. Such changes have a significant impact on the allocation of financial resources and decision-making. Numbers are juggled, and this information must be reflected in the audit to establish transparency and authenticity.
- Learn from the past
Mistakes made in the past are arguably the best source of inspiration to make it right in the present. Take a leaf out of your company’s audit from the preceding year’s audit and identify areas where you think you went wrong. Thoroughly check the documentation for former issues, and strategize to prevent the same from happening in the current year. It can be the starting point for self-review to ensure these issues do not resurface when the external audit team arrives to do its job. During the planning and meeting with the auditing team, discuss what went well during the previous year’s audit and identify improvement opportunities.
- Develop a timeline of events and tasks
Assess the workload, schedule, and deadline of the auditing process thoroughly. Keep in mind the time needed to acquire, manage and decipher the information. Auditing is a time-consuming process, and if you don’t make a road map of all the tasks at hand, it will be challenging to carry out a seamless process without errors. Allocate each job from a detailed list to an accountable individual and include deadlines. Handle the most critical areas first so that you do not face any problem in the auditing process. You must also dedicate some time to reviewing and correcting worksheets if required. Keeping everything on track is vital for any business. Therefore, when carrying out a critical task such as an audit, you must assign duties to responsible people and develop a timeline to get the job done within the suggested timeframe.
- Gather data
Everything from everyday office expenses to business transactions is essential for a transparent audit. Collect all proof of financial transactions, record them safely for long time purposes, and dedicate a responsible staff member to keep the records straight. Consider breaking transactions down into exchange cycles or categories, such as cash, income, revenue, receivables, costs, payables, ventures, etc. it will simplify the recording process. Keep spreadsheets and worksheets containing critical information in password-protected files and folders to prevent harm from cyber-attacks. Maintain a clean record of your income statements, balance sheets, and general ledgers so that sifting through numbers is easy. It will significantly smooth out the investigative process for the external audit team.
- Evaluate outcomes
The whole point of an external audit is to ensure compliance with regulations and identify financial business problems that are not apparent otherwise. Therefore, you need to be attentive throughout the process learn from the deductions of the audit team. Keep up with the auditors till the issuance of the review report. It will help you address any discrepancies and loose ends along the way. Also, conduct a post-review meeting with the auditors to discuss the review and take valuable feedback. The process should culminate with a road map to improved financial performance for the coming year.
It is safe to conclude that making your business available for audit purposes is essential in keeping transparency with your clients, reporting authorities, and the business environment. It is a crucial step to ensure that your assets are intact and your business operates smoothly. Better preparedness is essential for an external entity to carry out a seamless audit. Anything otherwise will create a frustrating experience for the examiner, followed by a potentially harmful review for your company or business. And you wouldn’t want that, would you?