Preparing for an Audit – The Unofficial Survival Guide
If you are reading this blog, it is likely that you are currently preparing for, or are actively engaged in, the audit for your company or organisation. Regardless of whether you are embarking on your inaugural audit experience or possess considerable expertise in all things audit, this blog aims to provide you with valuable insights into the audit process and how to prepare for it.
What are the Benefits of being prepared for an Audit?
It is a common misconception that an audit is a statutory ‘tick box’ process with little value other than a nice shiny audit report at the end of it. An audit, if prepared for effectively, can provide many benefits to a company or organisation. These benefits include the improvement of systems, controls, processes, and financial reporting. It can also promote transparency, accuracy, and accountability.
In recent years, we’ve seen some epic audit failures that have had us all scratching our heads in bewilderment. These incidents have raised serious questions about the effectiveness of the audit ‘ecosystem’ and a key part of that ecosystem is the organisation itself. So, being prepared for your company’s or organisation’s audit can significantly contribute to improving the quality of the audit which can only ever be a positive thing.
How to Identify the Need for an Audit?
The first step in preparing for an audit is knowing whether your company or organisation needs an audit. Generally, financial thresholds dictate when an audit is needed and more information on these thresholds for companies can be found here. For other types of organisations, such as charities, there are different statutory thresholds in place.
Most companies will only have an audit when they are required by law to have one. However, there may be other reasons why a company or organisation may need one. For example, shareholders may request a voluntary audit, or banks may require an audit as part of their conditions for providing certain facilities. So, all these things need to be considered when concluding whether an audit is needed.
Understand the financial reporting framework
Without financial statements, it is evident that the necessity for an audit would not exist. Therefore, it is important to have a clear understanding of the financial reporting framework that governs the accounts of your company or organization. By having this understanding, you will be equipped to identify balances and disclosures that may need substantial judgment or estimations. Early identification gives you more time to consider them and to collate the information that you need.
There are changes on the horizon in terms of UK GAAP so identifying and assessing the impact of these changes will help you be better prepared for when your auditor comes knocking.
Team availability and experience
The team that is involved in the audit process is important so ensuring their availability is critical before agreeing to a timetable with your auditor. So, understanding your team’s capacity levels is important to ensure they have sufficient time to deal with the audit. The length of the audit process, from planning to completion, varies significantly based on the size of the company or group being audited. Obtaining an understanding of this from your auditor can help you better plan.
Your team should possess the necessary experience and expertise to prepare the information that the auditor requires. If there is a gap in the required knowledge or experience, then being prepared for the audit means you can act early to address this. For example, engaging a third party to carry out pension or property valuations.
Timing and quality of information
Establish a well-defined schedule and key milestones in collaboration with your auditor well in advance of the audit. This should include the timing of when certain information needs to be given to them. This information should be in the form of a comprehensive list of deliverables to eliminate the need for guesswork. It’s important to exercise due diligence in compiling and presenting the information to ensure it is clear, concise and of the quality required to minimise subsequent inquiries and reduce the chance of audit overruns
The bar for auditors is constantly being raised by the regulators of the profession. Therefore, be prepared for your auditor to be more challenging and sceptical of the information that you provide them with.
Effective communication and feedback
Effective communication is vital in preparing for an audit, which, like Christmas, happens annually, but auditors appreciate year-round engagement. Keeping them informed about any changes or relevant issues that crop up during the year will make the audit process smoother when it comes around. Also, confirm your preferred communication methods with your auditor. This enhances the audit process’s efficiency by aligning communication tools with your team’s preferences.
Expect the audit to uncover process, system, and control weaknesses. Use this feedback to drive improvement. Auditors aim to enhance, not criticize, your operations. Additionally, discuss and rectify any financial statement errors or misstatements they identify.
Once the audit report is signed, don’t shelve the process until next year. Hold a debriefing meeting with your team and the auditor. This helps identify areas for process improvement, ensuring a smoother audit in the future.