As the financial year draws to a close, it’s time to start preparing for audit season. Finance team members need to be in top condition, well-resourced and prepared to understand the rules of game to ensure they are audit ready.

I am a big believer in the 4 Ps: Preparation Prevents Poor Performance. In my experience, preparation is the key to a smooth and efficient audit. But how do you get your preparation right given the inevitable juggle of managing business priorities and getting the staffing resources to prepare for the audit?

The good news is that there have been no significant changes to accounting standards for the 2023/2024 year. Additionally, it is expected that ASIC will continue its focus on corporate disclosures regarding a company’s operations, asset values and impairment, provisions and events occurring after the balance sheet date but before the completion of the audit report.

According to ASIC, directors are primarily responsible for the quality of an audit. ASIC states that: “This includes ensuring that management produces quality and prompt financial information for audit, supported by robust position papers with appropriate analysis and conclusions referencing relevant accounting standards. Companies must have appropriate processes, records and analysis to support information in the financial report.”

ASIC also expects that “directors should ensure there are adequate resources, skills and expertise applied to promote quality in the reporting process so that assumptions underlying estimates and assessments for financial reporting purposes are reasonable and supportable”.

In practice, over the past few years, many auditors have experienced resourcing challenges, as well as elevated levels of ‘scope creep’ where they are asked to help with the application of accounting standards. This potentially increases the risk of an auditor’s independence, which can impact on the quality of an audit and therefore lead to significant time and cost impacts.

Many accountants can underestimate the time taken to prepare financial statements and supporting documents for an audit or resolve accounting issues, so the key may be to starting earlier and setting realistic timetables to better grasp any accounting challenges that may affect an audit.

Accountants should identify early any challenges or problems that need to be discussed specifically with the auditors or requiring external assistance early on.

Certain challenges should be resolved well before the commencement of a final audit visit including determining share-based payments, R&D claims, and acquisitions, to name a few. This alleviates pressure from the busier months of August and September. The management of the board’s expectations may also be necessary.

Whilst acknowledging things do not always go to plan, the impact of missing timetables does have a flow on effect to audit resourcing, flexibility and costs. It is critical that management teams drive the financial reporting process, allowing sufficient time for the identification of issues, preparation of reports, review by the board and the overall audit process.

It’s clear that all businesses are facing challenges on a number of fronts. However, to ensure that the upcoming financial reporting season is as smooth and efficient as possible, additional early preparation will go a long way to ensure that you come out of the end of season on top of the ladder.

This article was first published in Financial Times – Winter 2024.