Companies need to be prepared to be for the big A – auditing. Not being audit-ready can disturb your normal work processes when the auditors come knocking. In this article, we explain the concept of being ‘audit-ready’.
What is Audit Readiness?
As the term implies, audit readiness means being prepared for an audit – before it happens. It entails testing your financial reporting systems and processes before the actual audit occurs. That will save you time and money on the actual audit and will get you closer to having a successful one. It doesn’t mean that you’ll be found to be 100% compliant, but it will put you in the best position possible to address any questions your auditors might raise. Being audit-ready will also help you decrease the impact of any disruption caused.
There are certain key steps to be followed when preparing yourself for an audit.
- PlanningThe most crucial step, the planning stage, is where you allocate adequate time to prepare for your audit. Depending on the complexity of your financial records, you’ll need to plan how much time and what resources you need. You must also set certain expectations for the audit. Throughout the fiscal year, auditing records should be kept up to date to reduce the pressure near the time of auditing. Prepare a comprehensive list of the specific audit procedures that the auditing team would likely perform.
- Update Yourself with Accounting StandardsEnsure you’re up to date with accounting standards and regulatory requirements throughout the year. It’s important to make your finance team familiar with any new accounting developments created by regulatory bodies. By staying up to date, you’ll spend less time tracking data and making changes to comply with regulations.
- Access Organizational ChangesIf your company has been audited before, you’ll know the changes in its financial situation from that point. Take those into consideration. Material changes such as investments into new projects or government support and grants would affect the auditing process. Also consider non-financial changes, such as alterations in internal control systems and management accounting standards.
- Make a Note of Past AuditsKeep a note of your previous years’ audits and the recommendations. Have you executed what you were supposed to? Did you adapt and ensure that past mistakes won’t be repeated? Make sure you’ve learned from your past audits and implemented those changes. Otherwise, what’s the point of an audit?
- Develop a TimelineCreate a practical and realistic timeline and assign responsibilities accordingly. Review your requirements from the auditors and assign each item to someone capable and responsible. Make sure these schedules are time-bound, as you need to ensure they’re completed systematically and in time to maximize your process’s efficiency.
- Organize Your DataOrganize and keep your working papers and schedules. Some categories you can sift them into are general ledger, fiscal year budgets, invoices and bills, transaction records, financial statements, and more.
Why Do You Need to Be Audit Ready?
A company needs to be audit-ready to reduce probing by auditors. This also reduces the risk of unpleasant surprises for shareholders during the auditing process. There will also be better MIS reporting. An audit-ready business means that you’re up-to-date with accounting and have updated bookkeeping information. That increases investor confidence and increases the credibility of the business. It’s also easier for investors to interpret your accounting info if your data is clear.
If your business needs foreign investments and audit-ready business signals that you’re preventing the possibility of fraud and embezzlement. That will help you attract more investors and customers both. You’ll also enjoy greater confidence amongst banks and other lenders. At the end of the day, you’ll have a higher business rating if you’re audit-ready.
How To Prepare for An Audit Readiness Assessment
- Update Your Processes and Technology StackOld ERP systems or highly manual processes increase the chances of errors and inefficiencies. Make sure you update your technologies. For example, you can use modern technologies like RPA, cloud, data analytics, as these allow for seamless and accurate reporting, budgeting, and forecasting. These can be used to automate end-to-end business processes. If you can add in accounting workflow automation software too, you’ll be able to streamline your processes by housing month-end tasks, supporting your documentation, and more – all in one platform.
- Setup Consolidation ProceduresMake sure everyone in your organization is on the same page. Organizations with many reporting entities must consolidate their records. That can be tricky if multiple accounting systems and countries are involved. You can document all the processes in writing to reduce inconsistencies in your processes. You should also reconcile all your balance sheets and income statements with material balances as frequently as possible.
- Monthly Closing ActivitiesConduct monthly closes, even if your organization is small. It’s a great practice and a good opportunity to identify problems as early as possible. It’ll also get your team in the habit of checking their balances as frequently as possible. You can create a checklist that will serve as a reminder of all your journal entries. This should be more than just a list of tasks. Include the people who are responsible for those tasks and any dependencies. Also mention the reviewer for each task.
- Prepare Accounting Positions for Key Issues and Their TreatmentAuditors will test accounting standard compliance and try to detect discrepancies. Having accounting papers ready for complex scenarios or topics will help clarify your position on these matters to them. If there are any issues where you are unsure, ensure that you’re ready for them beforehand, along with proof. Collect all the invoices and other documents that you need to describe the situation as clearly as possible.
- Understand Disclosure RequirementsFinally, ensure you’re up to date on the disclosure requirements that your regulatory framework prescribes. These tend to keep changing and are wide-ranging as well. They include accounting standards, laws, regulations, and other reporting requirements.
Lean on the expertise of third party consultants, as they’re the right people with the pertinent skills and experiences who can aid your finance team. Together, they will identify problems and create solutions. If you need help in this process, reach out to pros like us who can help you be audit-ready in no time.