The success of your year-end financial audit depends on the steps you take many months before. Whatever actions your finance team takes throughout the year, always ask this critical question: “Is my business audit ready?”
Audit readiness does more than make your auditors happy. It simplifies the entire audit process, speeds up turnaround time, and decreases the cost of your audit. It even helps beyond the audit itself. Internally, perpetual audit readiness helps you track your financial results against projects. Externally, it keeps you ready for lenders and investors, who review your books before providing capital, and prospective buyers if you look to sell the business
Staying audit ready is relatively easy for most organizations. The organization’s leaders do need to review their financial operations, but organizations should do this periodically in any case. All things considered, keeping your organization’s books audit ready is a strategy that’s high on return and low on investment.
The seven steps you can take to become audit ready
To make sure your financial records are audit ready, follow these seven steps. The effort you make throughout the year will help ensure the audit goes smoothly when year end arrives.
1. Know what the auditor’s job is—and what it isn’t
An auditor’s job is to examine the accounting—not execute it. By the time the auditor sits down with your books to sign off on their reliability, the records and operations should be as clean as possible.
Auditors are intervening less and less in the accounting function. Lenders, the public, regulators, and auditors themselves are pushing for increased independence, especially for public companies. The onus shifts to organizations, which must prepare their financial records before the audit.
2. Position your team to succeed
Mistakes happen in financial reporting, but minimizing them gets your books in the best possible shape for an audit. Help your team increase the quality by giving them the support they need. Assign them only the responsibilities that match their knowledge and experience level. And for questions they cannot handle themselves, they need a more knowledgeable resource who can—either internal or external.
3. Close the books monthly
A big part of staying audit ready is not waiting until the last minute. Every month, reconcile all your financial numbers and build them into the balance sheet. If you follow the process to the end of the year, your basic entries and ledgers will stay current. You won’t need to scramble to clean up your financial records, and your auditor will thank you.
4. Document all journal entries
You may have experienced this scenario: your auditor begins the audit and then asks your finance team to explain an entry. Members of the team can’t provide the context, and now the team needs to search for supporting documentation. To prevent this, create the audit trail when booking the entry in the first place, record it clearly for the auditor to understand, and indicate any corrections so the auditor can follow them.
5. Ask difficult questions as they arise
Not all accounting issues are created equal. While internal teams may be able to handle day-to-day entries, they often struggle to record complex transactions. Examples include buying a business, selling your business, accounting complexities of warrants, and choosing an accounting standard for your organization.
It’s worth tackling these questions by reaching out to to an external accounting advisor during the year. Your team could communicate how they think the event will impact the financial statements. The accounting advisor can assist management on the technical aspects and provide recommendations to adjust the team’s approach.
6. Pick the right accounting tool—and harness its full power
Whether you’re using off-the-shelf accounting software, an advanced solution customized to your needs, or a basic spreadsheet program, make sure to harness the full power of your accounting tool.
Spreadsheets can be programmed to automatically roll changes through all relevant sections of your financial statements. As your organization grows, the internal control weaknesses inherent in spreadsheets will push you to bring on a more sophisticated accounting technology. Make sure to take advantage of its full functionality; the software will help you make business decisions that go beyond financial reporting. Applications include inventory management, accounts payable, and cashflow forecasting. Keep them in mind as your finance function evolves through its digital transformation.
7. Repurpose knowledge from year to year
Each year is a new one, with new annual reporting requirements. That said, build the lessons you learn from one year into the financial operations of the next. By repurposing knowledge and best practices, you can empower your team and create a culture of learning and continuous improvement. Perhaps most important, your financial records will become more audit ready from year to year.
How BDO can help
BDO’s team of Accounting Advisory professionals helps organizations get their financial records audit ready. The team’s experience runs the gamut from day-to-day accounting to the most complex transactions. BDO’s Accounting Advisory professionals understand auditors’ needs and expectations when auditing the books. Yet they also know the challenges of today’s lean finance teams and support team members by sharing best practices.
The Accounting Advisory team works as a cross-functional group. Where applicable, they bring on professionals specializing in areas such as tax and technology solutions to benefit your organization. This approach emphasizes flexibility: tailoring the right mix of services to the size of the business.