Audits can be challenging but the key to a successful audit is planning and preparation.
There are three common types of audits:
- External audits: performed by an external auditor. External auditors provide independent opinions.
- Internal audits: performed by internal employees of a company or organisation. They are mostly for internal use.
- Compliance audits: performed to ensure a company or organisation comply with specific regulations.
External audit in particular has an important role as part of good governance and in maintaining the integrity of financial reporting.
Business managers, executives and directors rely on audited financial statements to set up and/or monitor KPIs and business objectives for the next 12 months and beyond.
External parties such as customers, suppliers, government agencies and banks also rely on audited financial information to make decision whether to engage and support the organisation or not.
So, how should a business prepare for an audit?
- Review your financial reporting obligations and/or requirements by the various stakeholders: An organisation may be subject to certain reporting obligations to regulators in accordance with its constitution or funding agreements.
- Plan ahead: Review previous errors and audit findings/recommendations, and whether any action was taken in improving the accounting process. Organise an independent valuation of assets such as property if required. Also, review resource requirements and whether there are sufficient and competent team members to prepare for the upcoming audit.
- Identify significant changes: The auditor would like to know whether there are significant changes compared to prior year so they can plan the audit better.
- Develop a timetable and assign responsibilities: Using the AGM date or lodgement due date, develop an audit timetable by working backwards. Allow sufficient time for your own team and auditor to meet the deadline.
- Review the latest accounting standards: The Australian Accounting Standards Board (AASB) website lists the latest accounting standards by operative date.
- Communicate and be proactive: Economic conditions and business operations are changing rapidly therefore while we can anticipate changes, there are events that are outside our control so once an issue is known, all you can do best is to discuss this with your auditor and find out the likely solutions as soon as possible. Delaying the process will not help the situation any better.
- Prepare paperwork: Close the books, reconcile all accounts and have them ready per the agreed timetable.
Following the above steps will help ensure a smooth audit, with planning, preparation and communication key to auditing success.
This article was published in the 2021-22 Summer Issue of Financial Times.