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Preparing Your Business for Financial Audits: A Quick Guide

Startup For Financial Audits

The effectiveness of your year-end financial audit hinges on the preparations made by your business well in advance. Read for some expert advice on getting audit ready.

Being audit-ready has numerous benefits including streamlining the audit process, reducing audit costs, and expedites the turnaround time. It also allows for the alignment of financial outcomes with projects and provides greater visibility into business performance.

In today’s labour shortage and high turnover rate environment, audit readiness is even more important. It ensures smooth audits despite team member departures and prepares you for lenders, investors, and potential buyers. To achieve audit readiness, follow these steps for a seamless year-end audit.

Achieving Audit Readiness: Eight Steps for Founders

  • Auditor’s Role: Understanding for Audit Preparation

Auditors examine accounting records, focusing on their accuracy and reliability. However, they are not responsible for executing accounting tasks. When auditors review financial books, it is important for the records to be well-maintained.

In recent times, auditors have reduced their involvement in day-to-day accounting functions. Stakeholders, including lenders, the public, regulators, and auditors themselves, seek greater independence, especially for public companies. Organisations must prepare their financial records before the audit, emphasising the importance of meticulous record-keeping and proactive financial management.

  • Strategies for Empowering Your Finance Team’s Success

In today’s talent-shortage landscape, the finance function faces specific risks. The strain of the shortage can lead to burnout and stress, potentially compromising internal controls and impacting the reliability of financial statements.

Minimising mistakes in financial reporting is crucial for preparing books in optimal condition for an audit. To improve the quality of your team’s work, it is essential to provide them with adequate support. Assigning responsibilities that align with their knowledge and experience levels can help them thrive. Additionally, if your team is overwhelmed, consider hiring a knowledgeable resource, either internally or externally, to alleviate the workload. Fullstack’s IFRS and Corporate Reporting team are available to provide assistance in this regard.

  • Monthly Book Closure: Efficient Financial Closing

To ensure audit readiness, it is crucial not to procrastinate. Implement a monthly practice of reconciling all financial numbers and incorporating them into the balance sheet. By consistently following this process throughout the year, your basic entries and ledgers will remain up-to-date. This proactive approach will save you from the need to rush and tidy up your financial records, earning appreciation from your auditor.

  • Documenting All Journal Entries

Avoid the frustrating scenario of your finance team struggling to explain an entry during an audit. To prevent this, it’s crucial to establish an audit trail right from the start. Ensure that supporting documentation is attached and clearly recorded for auditors to understand. Additionally, indicate any corrections made to enable smooth follow-up by the auditor.

Simplify the process with accounting software tools like Xero, QuickBooks, Microsoft Dynamics 365 Business Central, and Netsuite, which allow easy attachment of supporting documentation.

In line with auditing standards, a thorough assessment of internal controls and risks of material misstatement is required. Leaders can proactively support the audit by periodically reviewing and documenting financial operations, internal controls, and processes, ensuring a comprehensive understanding of potential risks and weaknesses.

  • Embrace Difficult Questions in Real-Time

Not all accounting issues are straightforward. While internal teams may effectively handle routine entries, they often encounter challenges when dealing with complex transactions. Some examples include:

Buying a business
Share-based payments
Complex financial instruments
Choosing appropriate accounting standards for regular transactions

To address these complexities, it is valuable to engage with our IFRS & Corporate Reporting team. By communicating the potential impact of these events on the financial statements, your team can benefit from our expertise. We can assist in navigating the technical aspects and offer recommendations to enhance your approach.

Our team is here to support you in tackling these difficult questions and ensuring that your financial reporting remains accurate and reliable.

  • Choosing the Perfect Accounting Tool: Unleash its Full Potential

As your organization expands, relying solely on spreadsheets can expose internal control weaknesses. To overcome this, it becomes crucial to adopt more advanced accounting technology, whether it’s off-the-shelf software or a customized solution. By harnessing the full functionality of these tools, you can make informed business decisions that extend beyond financial reporting. Inventory management, accounts payable, and cashflow forecasting are just a few examples of the applications that can enhance your finance function during its digital transformation journey.

During the implementation of a digital transformation strategy, it’s important to document the process and obtain necessary approvals. To ensure the integrity of data transfers and system implementation, involving an external consultant is recommended. Their expertise can contribute to a seamless transition and maximize the effectiveness of your accounting tools.

By embracing the full power of accounting tools and carefully managing their implementation, your organization can leverage their capabilities to drive growth, improve financial operations, and enhance decision-making processes.

  • Preparing for Future Sustainability Reporting Standards

Financial leaders are increasingly focusing on sustainability and Environmental, Social, and Governance (ESG) reporting. With the rise in climate risks and the introduction of new policies and regulations by governments, companies are expected to enhance their financial reporting practices, including the inclusion of ESG disclosures. The development of globally accepted reporting standards further emphasizes the need to prepare for upcoming changes, introducing additional considerations for year-end reporting.

  • Leveraging Knowledge Continuity Across Years

Each year brings new annual reporting requirements, but the lessons learned from previous years can be invaluable. By incorporating knowledge and best practices into your financial operations, you can empower your team and establish a culture of learning and continuous improvement.

Given the current high attrition rates, maintaining continuity within your team may present challenges. To mitigate this, consider documenting auditor findings, creating an internal SharePoint database to store all support provided throughout the year, and conducting feedback discussions. These measures will provide future auditors with insights into past occurrences and facilitate smoother transitions. Moreover, by leveraging this knowledge, your financial records will become increasingly audit-ready as time progresses.

Conclusion

Financial leaders face various challenges and opportunities in audit preparation, empowering finance teams, efficient financial closing, journal entry documentation, addressing difficult questions, selecting accounting tools, preparing for sustainability reporting, and leveraging knowledge continuity.

By understanding auditors’ roles, supporting finance teams, implementing monthly book closure, documenting journal entries, embracing difficult questions, choosing effective accounting tools and preparing for sustainability reporting, organizations can enhance financial operations and stay ahead in a changing landscape.

If you need assistance to get your company ready for financial audits, don’t hesitate to contact us atFullstack. We’re happy to assist you.

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Stuart Reynolds
is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, crypto and entrepreneurs.

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