Laura Leslie, corporate partner at DSG Chartered Accountants in Liverpool, discusses how businesses can best prepare for the audit process and spot potential complications early.
An audit is an independent examination of a company’s financial records by a qualified auditor. This examination assesses the accuracy and reliability of the company’s financial statements, ensuring it complies with accounting standards and provides a true and fair representation of the company’s financial position.
Audits are crucial for small businesses as they enhance credibility and trust among stakeholders, including investors, lenders, and customers. An audit can also help to detect errors in financial reporting, strengthen internal controls, and ensure compliance with regulations – ultimately leading to more informed decision making and a stronger financial foundation for a business to thrive.
To ensure that your business is prepared for an audit, there are some key pointers to consider to make the process as stress-free and seamless as possible.
Finding the right time
Depending on the size of the business, an audit visit can typically range from two to four weeks, and it will also include some up-front planning and completion time. Businesses should plan their audits for a suitable time for their business, ensuring it’s not during month-end, or typically busier periods, or alternatively when people are out of office. It’s important that auditors have access to the relevant members of staff so that the audit causes minimum disruption to business operations or takes longer than necessary.
Gathering the required documents
It is beneficial to prepare key documents and schedules, such as fixed asset registers, debtor, stock, creditor ledgers and summaries of key balances, alongside any supporting documentation including invoices and contracts ahead of the audit commencing. In more recent times, audits tend to be conducted on a hybrid basis instead of through full in-person visits, so it’s best practice to have all documents organised electronically and have a share file set up to readily share information.
Being prepared for questions
During the audit process, auditors will ask questions to understand business performance over the past year and look for evidence to see how your reported performance is reflected in the numbers. Furthermore, auditors will seek to understand your business’s future trajectory, assessing its long term viability and potential areas of future concern. It’s advisable to consider these questions ahead of the audit so you can come well prepared with answers.
Spotting potential complications early
To avoid any complications during the audit process, it is essential to maintain accurate and complete records. Ensure at each month end that all the key balance sheet areas are being reviewed and reconciled. Any discrepancies that appear should be thoroughly investigated and addressed to minimise any likelihood of complications. Keep an open line of communication with your auditor. If issues arise, these professionals should be well equipped to resolve them with you.
Planning and preparation are key to successfully navigate an audit. Numerous factors must be considered, including timing, financial records and collating the necessary information ahead of the audit visit. This preparation is crucial to ensure a smooth and efficient audit process, minimise disruptions, and ultimately achieve a successful outcome. Working with trusted advisors can significantly alleviate the pressure and complexity associated with audit preparation. By proactively addressing audit requirements and leveraging the support of professionals, businesses can enhance their financial transparency and build a stronger foundation for future growth.
