Why internal audits are crucial to your business
Conducting regular internal audits is important if you want to gain reassurance from an independent party that your organizational controls, compliance functions and risk management methods are operating efficiently.
While external auditors will focus on your financial records and potential risks, internal auditors may be able to take a broader view and consider how your financial reporting and compliance relate to topics such as your reputation and prospects for growth.
The process can also examine whether you're handling sensitive data in the right way and identify issues that may be affecting productivity.
You can maximize these benefits and increase the likelihood of your company getting the best results from your audits by following a clear workflow to prepare for them.
1. Plan ahead
It should come as no surprise that the most important step you need to make in preparing for your audit is to plan ahead. You'll need additional time in the lead up to the audit, as well as the extra resources required to do final preparations before you start official work on it. The entire finance team will have to ensure they have the necessary resources and time needed to plan and set expectations for the audit.
This is a crucial element of ensuring the process is as stress-free as possible for all involved. Although year-end audits only need completing annually, you should be thinking about it throughout the year. Keep records and schedules as up to date as possible as this will reduce the lead-in time you need for each yearly audit.
2. Brush up on accounting standards
Accounting standards are almost constantly changing and this may affect your organization and its year-end audit. Familiarize yourself with any accounting development as it could affect how you're able to track data or operate. Ensuring you keep on top of any new industry standards will make the auditing process easier in the long run, as well as help to identify where you may need more support to comply with regulations.
Standards often require certain training to be delivered to professionals, so it's essential that you maintain a good understanding throughout the year to safeguard your company and its internal figures. This can also hammer home the value of attending industry conferences, as they can be an effective way of keeping your finger on the pulse of accounting.
3. Reconcile all accounts
Ahead of the audit, you need to ensure all of your accounts are as straight as possible. This involves paying any bills and employee expenses that may have been left until now, as well as collecting invoices. This will help you give the most accurate projections and analysis during the audit. It may also involve resolving any admin issues, such as ensuring contractual amendments are with the original contract so that there's no confusion over revenue.
4. Learn from previous errors
Audits rarely go completely smoothly, especially the first time you complete it or in a year when the organization has undergone a number of significant changes. Most year-end audits will have adjustments made and these can be a fantastic starting point to help you draw more accurate conclusions this year. Schedule a planning meeting with those performing the audit and decision-makers to see how you can navigate the previous errors made and improve the accuracy of this year's audit.
5. Identify significant changes
How has the company's financial situation changed from last year? Are there new projects that are being invested in? Is there more revenue coming in? These are key questions that you need to answer ahead of the year-end audit to be fully prepared for the review. You should also consider any grants or government support your organization has been given over the past 12 months.
It's also important to note any non-financial changes that have occurred in the company. Have internal control systems been altered or were new processes introduced? You need to be aware of these things as they could indirectly affect the fiscal findings for the year.
6. Draw up a timeline
Auditors will normally ask for certain evidence of your year-end audit at certain deadlines. You need to be clear on when these are and what you need to have achieved as an organization to ensure you can supply the right documents at the necessary time. Make sure you’re allowing enough time for things to not go to plan.
In addition, it's always a good idea to have a regular team meeting so that everyone understands where individuals are at with their tasks. This helps to reduce the amount of time wasted if any member of staff has an unplanned absence in the lead up to the audit.
7. Divide responsibilities
Each element outlined on the timeline should be assigned to a person, and they should then break down the smaller tasks that need to be achieved. This makes the whole process much more manageable and quantifiable for both the team and decision-makers. You should designate clear internal deadlines for work to be finished, which should be an appropriate time before the hard deadline given by the auditor.
This should give you time to fight fires and resolve any last-minute problems that arise. With this in mind, your timeline should tackle the most difficult or time-consuming areas wherever possible first.
8. Be proactive
If there are certain items requested by the auditor that you're unsure about, you should be proactive about it. Asking them questions will avoid any unnecessary delays once the audit has begun. You should also talk to decision-makers or those you’ll be relying on for certain details to complete the audit preparation. It's important that there is total transparency between you and them and that they’re clear on what you need from them.
9. Prepare your paperwork
You should make sure you have all the items on your auditor’s preparation checklist ahead of the start date. This information should be submitted electronically and usually includes:
- General ledger
- Employee handbooks
- Fiscal year budgets
- Paid bills and checks
- List of transactions
- Internal financial statements
- Accounting policies.
They may also ask for minutes from relevant meetings with directors and other organizational documents, so it's important you check what is necessary even if you've successfully completed an audit before.
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