“By failing to prepare, you are preparing to fail.” Benjamin Franklin
Preparing for an Annual Audit can be daunting and time consuming, especially if you will be doing it for the first time.There is also a likelihood that the prospect of an independent audit of your company accounts could trigger fear and other negative feelings. But this shouldn’t be the case.
Taking some simple measures like reconciling bank accounts on a monthly basis, will ensure that your Annual Audit is as seamless and effortless as possible.
At MGT we understand that if you are not prepared, it may feel as if you’re being presented with a long list of demands. We also understand that Annual Audits rarely go completely smoothly, especially in a year when your organisation has undergone a number of significant changes. That’s why we have spent some time preparing the below tips that will guide you:
But first, let’s examine the benefits of having an audit.
Why auditing is important?
According Patroit Software, an audit seeks to look into the company’s financial records to verify if they are accurate. This is done through a systematic review of business transactions. Audits will look at things like your financial statements or accounting books for small businesses.
Most business owners rely on financial statements to guide their business decisions. This doesn’t help much if the figures used to create the financial statements are incorrect. In that situation, how can an audit help? An audit will verify the accuracy of those financial figures.
Also, an audit will help to spot errors in your numbers, which will ultimately improve your decision making. So, in the long term, a company audit can get your business back on track and boost your bottom line.
Preparing for an audit
So, what happens when your business gets audited? Before an audit, you need to get your financial records in order. Theoretically, you should always be prepared for an audit, but this is not always the case. You should have an audit trail so you can prove where your numbers come from.
What are the benefits of having a financial audit?
According to Daniel Corridor (CFO at LLC), these are some of the benefits of having an audit:
- “Enhanced quality of the financial statements;
- Third parties such as banks and investors may require business to have audited financial statements;
- The audit will look at your internal controls and the auditor should provide suggestions on how to improve them”
Here is how you can prepare for an audit:
- Make sure your bank accounts are reconciled properly
This is one of the most crucial steps. If you can’t do it yourself then consider hiring an accounting firm such as MGT Accounting to reconcile accounts for you on a monthly basis. Monthly reconciliation helps you identify any unusual transactions that might be caused by fraud or accounting errors, the practice also helps you to spot inefficiencies.
Addressing anything that doesn’t reconcile early on will be a huge time and money saver, rather than doing it during the audit.
Alternatively, if you have a finance department, they should complete reconciliations on a quarterly or monthly basis. This will flush out any anomalies early on, leaving you plenty of time to fix them prior to the start of the audit.
During the audit you should bring financial records such as bank statements, credit card statements, receipts, invoices, and journal entries as the auditor will use such records to test for accuracy and discover errors. The more information you provide, the more organised you are.
- Familiarise yourself with any new Accounting Standards
Accounting Standards are almost constantly changing and this may affect your organisation and its Annual Audit. So, it’s essential that you maintain a good understanding throughout the year to safeguard your company and its internal figures.
Acquaint yourself with any accounting developments as it could affect how the audit process goes. Keeping up with those changes will also make the auditing process to run smoothly.
- Double check on how change was effected.
Changes on business operations and accounts are common, this could be a purchase of new equipment or additional line of stock. Whenever such changes happen, there will be a need for something to change in your accounts as well.
So, it’s imperative to make sure you’ve double checked how those changes were carried out. Clearly, this is an area where there is a higher-than-normal likelihood for errors.
- Carry out an internal or ‘mini audit’ as a practice
A ‘mini audit’ won’t be performed on the same level as a formal audit, but it will serve as a good practice.
Having someone with some accounting or auditing background in your team to head the ‘mini audit’ could be an added bonus. However, if such a person doesn’t exist in your team, you may as well consult with a qualified Auditor to help you.
- Make sure you are ready to be audited
It’s crucial to be organised for an audit. An Auditor needs to delve deep into the inner workings of your company.
You might know where everything is filed but the Auditor won’t, even if he is someone who regularly visits your offices. Have everything prepared and in a position for them to get access to it easily and quickly. You don’t want to spend the entire audit hunting for that pile of receipts.
Additionally, make sure you keep special records of certain equipment, called “listed property”, that is often used for both business and personal purposes.
- Draw up a timeline
As Auditors normally ask for certain evidence to be furnished at certain deadlines, you need to know where these are and supply them at the right time. Drawing up a timeline will allow you to have the required evidence gathered beforehand and supply it when needed.
Have some questions? Ask MGT today!
If there’s anything you’d like to know, perhaps something new or an accountancy procedure you’ve never dealt with before, let us know.
We’ll be happy to talk you through it. Email firstname.lastname@example.org