For any business, the annual external finance audit can be an arduous and time-consuming task. The ideal is always to have the audit go without a hitch, and for the external auditors to be out of the way as quickly as possible. No offence taken, of course! After decades of performing audit and assurance services, we understand the extra pressure that a financial audit places on internal teams.
Of course, there will always be challenges. Unforeseen questions and unexpected financial anomalies will slow things down, but there are several things that every company can do to help make a financial audit run smoothly. From planning and preparation, to doing the right groundwork with your external audit team, here are our top tips that every company can do to make sure your financial audit goes as smoothly as possible.
What is a financial audit and why is it so important to get it right?
Let’s start at the beginning. A financial audit is a systematic examination of an organisation’s financial statements, records, transactions, and internal controls. The main purpose of a finance audit is to provide an independent and objective assessment of the accuracy, completeness, and reliability of a company’s financial information. So, why is having independent assurance so key? The financial audit provides assurance for users of a company’s financial statements that they are materially correct, giving greater confidence in decision making. This kind of trust in your financial statements is vital for any business looking to grow, expand or indeed, sell.
Does every company need to complete a financial audit?
If you’re a small company, the simple answer is no. By law, most smaller companies are exempt. In fact, if you’re a limited company, you will only need to complete an external financial audit once you meet certain criteria. That is, if you can answer ‘yes’ to any two of the following three statements:
- You have total assets totalling over £5.1 million
- Your turnover has reached more than £10.2 million
- You employ more than 50 employees.
That’s not to say however, that a financial audit isn’t worth considering. Regardless of the regulations, there are plenty of reasons to choose to get your company accounts audited. Compliance, business optimisation, and confirming the validity of financial statements (as above) all make using audit assurance services well worth the investment.
How long does a financial audit take?
Timings can vary depending on the size and sector of the business, but typically, financial audits are scheduled in three phases. This allows the auditors a phase of up-front planning, a fieldwork phase at the company’s base, and a final phase to draw up the report. As a company therefore, you will need to prepare for members of your finance team to be lightly engaging in the audit, on-and-off for much of the time. However, the fieldwork stage should be the all-hands-on-deck phase to maximise efficiency.
Internal groundwork: how companies can prepare for a smooth financial audit
Planning and preparation are key to making an audit go smoothly, the more preparation that is done in advance of the scheduled audit time, the smoother the experience and more efficient the process. It should take a company with limited financial issues just a few weeks to prepare for an audit. However, even if you’re fully versed in how to conduct an audit of financial statements, extra time spent up front will often save, cost and time later.
Plan your personnel
It might seem obvious but surprisingly few finance departments thoroughly think through their strategy for allocating time and people to their audit. Teams that are overstretched or inexperienced will always slow down the process. Where possible, ensure that support is in place on day-to-day accountants to help lighten the load and free them up to focus on the most pressing financial audit tasks.
Have a contingency team in place
There is nothing like mid-financial audit holiday or staff sickness to upset your timelines. These things happen, so why not ensure upfront that you have cover in place and that everyone that needs to be is fully-briefed on the process.
Ask questions early
Your newly appointed audit manager should ask plenty of questions and inform the auditors as much as possible about your businesses’ accounts during the planning stage. Better still, schedule a face-to-face meeting to discuss plans with your auditors to understand the process and raise any potential issues well before the finance audit gets underway.
Want to really get a head start? Take advantage of working with quality auditors who encourage their clients to highlight queries on accounting treatments throughout the year and seek advice along the way.
Get all your audit files and schedules ready in advance
It probably goes without saying, but if your accounts aren’t ready to be reviewed, we can’t get on with your finance audit. Time spent searching for mis-filed documents and correcting minor mistakes is valuable time wasted.
The audit and assurance services that can help smooth things along.
From appointing a hands-on team, to encouraging time on-site, there are a few things you can look for in your external audit team to ensure your financial audit goes smoothly.
Is appropriate resource secured?
It’s important that you understand how your external audit team will operate, so feel free to ask. An audit is carefully scheduled based on a time budget for how long each area of the audit testing takes to complete. At PEM, this is done at the planning stage and revisited once a compliance cycle is complete to ensure the resourcing allocation is appropriate. As a result, audits with PEM run smoothly and efficiently as we always ensure sufficient recourse has been allocated ahead of time. When arranging an audit, ask your audit team to clarify for you, how do they plan to resource for your required audit assurance services. If resource isn’t to be allocated in advance, be mindful that delays may be incurred.
Should your audit team work on site?
From our experience, we would always say a hearty ‘yes!’. Although it can be awkward to accommodate the extra bodies, we place emphasis on being site-based where possible, and always schedule in regular calls during remote financial audits. Engagement managers complete reviews of audit testing during the fieldwork time so that any review points can be addressed in a timely manner, and so that the engagement manager has a chance to interact with clients to build the working relationship. And of course, you and your team respond much more readily to requests for information when your feel like a valued part of the process.
Can a hands-on finance audit team save time?
Our hands-on approach involves the entire engagement team, meaning that any issues that arise are looked at on a real-time basis by everyone, and a solution decided upon. The result? No last-minute challenges are revealed as a filing deadline approaches.
Is blanket financial audit testing always appropriate?
We don’t think so, no. We specifically tailor our audit to each individual client. Our approach to testing is based on a deep understanding of the business and where the risks in the financial statements are. As a result, unlike a blanket audit testing approach, our testing is very targeted, and more time efficient.
Can the audit timeline be based on your dictated deadline?
Your financial audit timelines should work for you. We understand what deadlines are important to our clients, so we approach logistics based on these. Beyond statutory filing deadlines, clients can have other business pressures that impact on their timing goals. So, whatever deadline you choose, we’ll work backwards from this to plan our audit timeline to make certain we meet it.
Is an audit findings report standardised?
Your audit team will have established what an audit financial statement report looks like to them. Although there are statutory elements, there are ways audit teams can make sure your report works hard for their client. Our audit findings report is tailored to management and those charged with governance. As well as meeting statutory communication requirements, we aim to present them with meaningful and useful information, noting pragmatic recommendations based on the size and resources of the business.
Set your sights on a smooth financial audit and smooth audit you will have.
As you’ve discovered, it is certainly possible to set yourself up for a smooth finance audit. With the right people, planning and preparation in place on your side, and an external audit team in place that you can trust to respect your individual company’s needs – enjoying a smooth next audit is well within your reach. Speak to find out more about how we can help.
This article was correct at time of publication.
