How to prepare for your end of year statutory audit
The end of year statutory audit process can sometimes be intimidating but the key ingredients for a smooth and effective audit are preparation, preparation and preparation. “To be prepared is half the victory” as Miguel de Cervantes once said.
Whether it is a statutory audit or you elect for a voluntary audit, it is important to consider the timing and how you prepare for your year end audit to ensure the business gets the most value from the whole audit process.
The overall objective of an audit is to form an independent opinion on the information presented in the financial statements whether that information reflects the true and fair view of the company’s financial position or not. Statutory audit increases the credibility and reliability of the financial statements.
The most significant part of an audit is examining the decisions taken by the management team in connection with key judgments and policies that affect the financial statements. Auditors will delve into how these decisions align with the requirements of accounting standards, and common practice in the sector.
In this blog, I’ll give you my tips on how best to prepare your team and business for an end of year audit.
How to prepare for your year end audit
Preparation and planning are crucial. Additional time needs to be taken to be ready for an audit. It may be a few months or a few weeks, depending on the complexity of financial records.
Time is required leading up to the audit, and additional resources should be allocated for final preparations to plan and set expectations for the audit.
Agree the audit timetable in advance
Agree with your auditor a timetable that suits you and your business as well as statutory requirements.
A good audit timetable should include key deliverables and actions. This timetable should be circulated to your accounting team and if any of the team have a concern, they can raise it early in the process.
Ensure your finance team have names and contact details of individuals in the audit team or the key individual/partner in the firm to contact during the audit process.
Ask your auditors for a ‘prepared-by-client’ list in advance
After your financial year end and pre-audit planning meeting, your auditors should issue you with a ‘prepared-by-client (PBC)’ list. This list will detail what documentation your auditors require for the audit. If you don’t receive this, request one from your auditors.
This can take a significant amount of time to prepare, so getting this list well in advance from your auditors will allow you plenty of preparation time, ensure your year-end processes are good and can avoid last minute panics during the auditing process.
Agree the process
Get a clear understanding of the whole process, including when and for how long the audit team may be onsite and if and how they use a hybrid approach to the audit (onsite and online).
Agree ways of communication throughout the process i.e., Teams meetings, face to face and emails etc. It’s important that any documents are transferred securely, so agree the best way to transfer documents. Many auditors will have secure document exchange software or portals.
Once you have the PBC list from the auditor, ensure your finance team look through it carefully to ensure they understand everything that is requested. If there are any items that they don’t understand, speak to your auditors prior to the start of the audit. Most auditors are happy to answer any questions that you may have.
Being prepared and asking questions up front will avoid unnecessary confusion and duplication of work for your accounting team, whilst ensuring you have everything to hand when required.
Access to online accounting software
The use of technology in your business and your auditors’ business will ensure a much smoother and quicker audit process.
Giving your auditors access to your accounting software and financial data online will enable them to select samples in advance of audit fieldwork, which will give you time to prepare.
Using online software and storing your documents digitally by scanning them and uploading them will ensure the information you need is readily accessible online, rather than having to wade through paperwork.
Perform regular reconciliations
Don’t leave it too late to complete reconciliations. Having a finance team that completes reconciliations on a quarterly or monthly basis will ensure a smoother process. This will highlight anomalies early and will ensure you have time to address them prior to the start of the audit.
Address potential complications throughout the year
If your company inputs an unusual or new transaction that your auditors are likely to ask questions further down the line, don’t wait until your financial year-end to address it. Give your auditors a call and provide them with the information they need to make sure the correct accounting treatment has been applied. This way you avoid having to backtrack through months of documentation to explain yourself during the audit.
Look at and discuss company changes and plans
If your company has been audited before, then changes in its financial situation from the last audit should be taken into consideration and discussed.
Other changes may affect the auditing process, such as new projects and investment etc. If you changed things like internal control systems and management accounting procedures, these should also be highlighted to the auditors at the pre-audit planning meeting.
Be proactive in providing documentation to support anything that may be unusual in your accounts such as significant or one-off transactions. This will pre-empt further discussions with the audit team. Bring these to the attention of the auditors as soon as possible (before year-end if possible).
If you have been audited previously, review your last year’s audit notes and recommendations and look to address anything outstanding prior to this year’s audit.
Plan internally for your year end audit
Ensure all your internal team are available during the audit and allow them to set aside plenty of time for the audit. Having the right people available when onsite audit fieldwork takes place can help to smooth the process and deal with any queries as they crop up.
To gauge a comprehensive understanding of your business, the audit team will need additional information that sits behind the figures. Not being able to answer any queries quickly or having people available can prolong the process.
Preparing in advance for your year end audit can deliver a much more efficient and less time-consuming audit.
Regular and clear communication with your auditors before, during and after the audit process will help it run smoothly and effectively.
Remember, the key to decreasing the stress of an audit and increasing the benefits is preparation, preparation and preparation.
For more help and advice on your year end audit, contact us.
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