The Reporting Automation Playbook for Private Equity Funds
11 Tips To Ensure A Smooth Financial Audit
Audits are challenging enough without shooting yourself in the foot and exasperating those challenges. And as good as we are here at Embark with our kernels of wisdom and experience-driven guidance, we can’t prevent shivers from running down your spine when you hear the “a” word except to assure you there’s no reason to be scared of the big, bad audit wolf.
Therefore, to make life easier for you, your organization, and your loved ones that put up with your nervous habits as an audit approaches, take these tips to ensure a smooth audit to heart. They might not make the experience the financial equivalent of wine and roses but, if deliberate and organized with your approach, can certainly take much of the edge off of the experience.
- Start early: Hurried audit preparation is poor audit preparation. Spread things throughout the year to prevent rushing the process at the last minute. Make your timelines readily available to everyone on your team so everything is easily tracked and kept on schedule.
- Communicate with your auditor: Minimize the impact surprises wield on your audit. If a complex or atypical transaction is on the horizon, pick up the phone and call your auditor beforehand. Starting with the correct accounting treatment alleviates many headaches down the road.
- Documentation: There’s no such thing as an audit trail that’s too wide, expansive, and detailed. Document anything you suspect might be material for your audit, ideally in an organized, tech-driven manner that makes wading through that beautiful audit trail straightforward and convenient.
- Give yourself a breather: If the engagement is likely to stretch out for a significant amount of time, ask for a scheduled break halfway through to take a deep breath and catch up on your other responsibilities. Remember, the audit always takes precedence, but that doesn’t mean you hit pause on your operations during the engagement.
- Designate a point-of-contact (POC): Accounting and finance are team efforts, communicating with your auditors is not. Elect an individual to serve as the POC, preventing inefficient or even chaotic communication from overwhelming the process. That person is the conduit that all questions and concerns for the auditors run through.
- Pay close attention to the PBC list: You’ll receive a prepared-by-client list before the engagement begins. Take this as gospel and use it as a catalyst to make everything smooth heading into fieldwork. Going through everything your auditor requests also helps ensure you start with a crisp and clean trial balance, no lingering questions remain, and the audit team can hit the ground running without delays.
- Come to a consensus on the PBC items: Speaking of the PBC, come to an agreement with the auditors on every PBC item and the associated due date before the engagement begins. This leaves time to address the inevitable questions or issues that arise.
- Delegate tasks, create a timeline: For each PBC item, assign responsibility to an individual or team, including a specific completion date. Once again, gather those different tasks and timelines into a spreadsheet that everyone involved can access to maintain transparency and efficiency across your entire team.
- Take a look in the mirror: Once you make your year-end entries and closing is in the rearview mirror, take a step back from everything and take a look at your financials. Does everything look okay? Are there any items or areas that don’t pass the proverbial smell test? While you’re at it, make sure all needed disclosures are in place and ready to go.
- Maintain effective controls year-round: Well-maintained controls can be a life-saver when your audit rolls around. Make sure you have mechanisms in place that, for instance, properly code invoices to the correct GL account. Ensuring the accuracy of such items on an ongoing basis drastically reduces the chances of a miserable audit experience.
- Learn from the experience: Always build on what you’ve learned from previous audits, ensuring that it’s a continually-improving process that refines itself over time. Like it or not, you never reach the top of the audit mountain and will always find areas of improvement. In fact, look at the auditor’s opinion and comments, adjusting entries and “passed” adjusting entries as a roadmap for improving your organization, not as an indictment on everything you hold dear in life.
This list obviously isn’t exhaustive and, by design, sticks to the high-level side of the guidance. Building a consistent, reliable framework for your audit is fundamental to getting the most from the process, ensuring a smooth audit, and keeping the pre-audit jitters at bay. If you find that your financial house needs some tidying to prepare you for audit success, Embark is always here to analyze/improve your controls, clean up your financials, or integrate finance transformation tools to streamline your operations. It’s what we do, we’re darn good at it, and we’d like nothing better than to help you view an audit as an opportunity rather than something that keeps you up at night.