The annual external audit of your entity’s financial statements does not need to be a stressful affair for staff and management.
Good planning and execution, as well as effective project management can make the audit process a smooth and efficient experience for you and your auditors. Ultimately, ongoing and timely communication between the entity and its auditors is the key. Just as importantly, there must be good communication within the entity between the finance function, the operational areas in the entity, and between the board and management.
Below are my top five tips for audit success:
1. Engage with your stakeholders early
The annual audit process has a number of key stakeholders. Engage with each of these stakeholders early to fully understand expectations, requirements, limitations and timelines. Typical key stakeholders would include:
- The Audit Committee and/or Board.
- Executive management.
- Finance department.
- Key operational managers.
- The audit partner and audit manager.
2. Identify issues early
By engaging with stakeholders early, all issues should be identified. This includes potential issues that may impact on the financial close process, as well as the financial statements preparation and audit process.
These issues can vary in nature and may include:
- Staff resourcing or capability shortfalls.
- Technical issues that could impact on the financial statements including new accounting standards or new business activities by the entity.
- Any new agreements or contracts that the entity has entered into that need to be considered- regarding their impact (if any) on the financial statement process.
- Regulatory or compliance matters raised by regulators, tax agencies and the like.
- Changes in internal processes or systems.
- New banking arrangements or facilities.
- Any valuations performed.
3. Develop a detailed timetabled plan
Break the financial close process and financial statement preparation and audit process down into detailed steps or components. Assign responsibility for each step or component identified, and ensure a time period is allocated which reflects when each action items needs to occur and be completed by.
This detailed timetabled plan should incorporate specific information requirements that your auditors will require as part of the audit process. Such scheduled plans can be lengthy, however, by capturing all requirements and assigning responsibility, you can help ensure nothing is missed or not done.
In terms of deciding on timing and deadlines, work backwards from the date you want the financial statements to be signed by the directors and the audit partner.
4. Quality control
The entire financial close and audit of the financial statement process will run more smoothly if the entity implements a quality control process regarding reconciliations, and information requirements for the auditors as well as the financial statements themselves.
Ideally, these should be reviewed by a person other than the preparer to ensure the end product is accurate and agrees to underlying records or information.
In relation to the financial statements, provision should be made for adequate review by executive management, the Audit Committee and/or Board.
5. Communication and project management
Ongoing communication and review of progress to ensure you are following the timetable plan is the key to ensuring all stakeholders remain on the same page, and that nothing falls through the cracks.
Assign a project manager who has responsibility for tracking the deliverables against the detailed timetable plan- holding individuals to account for timeliness and quality.
In addition, the project manager should arrange periodic meetings with key stakeholders on a regular basis to resolve any issues or roadblocks. During the year-end audit process, it is suggested that either the audit partner or audit manager be part of these regular project meetings.