Audit ready or audit readiness is just as the name implies: ensuring that your organization is prepared for an audit. Achieving audit readiness not only supports the external auditor’s objectives, but it also benefits the organization internally through the tracking of financial results against operations, and externally, through the reporting to lenders and investors. The following steps will ensure your team is audit ready all year round!
Understanding the role of your auditor
The auditor’s job is to examine the organization’s accounting records and does not entail the creation of those records. As lenders and the public push for increased independence, auditors are becoming less involved in the preparation of financial records. The onus is shifting to organizations to scale up their finance team to ensure financial records are prepared internally and ready for the annual audit.
Align your team for success
Having a strong team is key! Providing your team with the proper tools and support is imperative to ensure work-quality is maintained. Responsibility should be allocated to the team member based on knowledge and experience. For instance, when dealing with complex transactions such as acquisition or stock-based compensation accounting, ensure the engagement team is comprised of individuals that have experience dealing with similar transactions.
Streamline your month end and record keeping process
Solidifying your monthly reporting is an integral component to becoming audit ready. At month end, the financial team is tasked with the reconciliation of all accounts and the creation of internal financial statements for management to review. As such, month-end close should not exceed five to eight business days to ensure that the basic entries and ledgers are current and year-end close does not become overwhelming. As part of this process, supporting documentation should be efficiently retained and indexed.
As part of any audit, the external auditor will rely on supporting documentation for journal entries and transactions to be provided on behalf of the company. In the absence of readily available documentation, additional professional fees may be incurred. To avoid delays and additional fees, companies should streamline their record keeping process to achieve audit readiness.
In addition to supporting documentation, the incorporation of required audit schedules as part of the year-end close is an integral part of the audit process. Your auditor should provide you with a client assistance package, which includes a checklist with the schedules required for the audit. Going through the checklist and ensuring all required schedules are available will help your organization to achieve audit readiness.
Pick the right accounting tool
Maintaining a strong finance and/or accounting team is equally as important as implementing the proper accounting tools and software aligned with your organization’s size. For instance, a start-up business may utilize a baseline software such as QuickBooks or basic Excel spreadsheets, which considering the organization’s size may suffice. However, as the business grows, it is important to periodically review the current accounting software to ensure the software provides your organization with the necessary capabilities to analyze operations and meet reporting requirements while allowing for automation of certain month-end reporting processes.
Use your auditors as your trusted business advisors
While your finance team can handle the day-to-day entries, they may not be qualified or have experience with complex transactions such as business acquisitions, adopting new accounting standards, stock-based compensation accounting, etc. Reach out of your auditors when such unusual transactions arise. Your auditor will be able to guide your team through the technical aspects and provide recommendations as needed, to ensure the initial accounting is in accordance with the accounting framework.
An audit should not be a daunting time of year, if your books and records are streamlined, an audit can be done efficiently and effectively. Investing in a qualified finance team is imperative based on the complexity of your operations and size of organization. Lastly, ongoing open communication with your auditors is key! Keep the auditor up to date with the organization’s operations and any unusual transactions so they can plan and provide guidance, as required.
At Grewal Guyatt we build relationships with our clients to assist you with your audit readiness by providing you with the right tools and guidance from the onset so there are no last-minute surprises. Becoming audit ready will not only result in a cleaner, more efficient audit, but it will also minimize audit fees. Do not hesitate to reach out to our team to determine if your company is “Audit Ready”.