Key areas to focus on during pre-audit review

Reconcile key accounts

Accurate reconciliation ensures that any discrepancies between the general ledger and subsidiary ledgers are resolved before the audit. Performing these reconciliations monthly prevents the accumulation of errors, and it reduces the risk of auditor concerns over unresolved or unsupported balances in key accounts.  See more below.

Review new or modified contracts or agreements

Contracts, especially those involving leases, debt or equity arrangements, or revenue arrangements, often receive heightened scrutiny during an audit. Review any new or modified significant contracts to assess accounting implications. 

Ensure estimates and judgments are up-to-date and supported

Significant estimates, such as those related to impairment, fair value, or reserves, should be current and supported by robust documentation. Auditors frequently focus on estimates due to their subjectivity and higher risks. Make sure your impairment tests, fair value assessments, or reserve calculations are thoroughly documented and supported by up-to-date and relevant data, inputs, and assumptions.  

Review impacts of new accounting standards

New accounting standards must be adopted and properly reflected in the financial statements. The pre-audit review should confirm appropriate consideration, adoption, and implementation of new standards that are effective for the reporting period. Addressing these changes proactively will prevent surprises during the audit and demonstrate a thorough understanding of current accounting requirements.

Best practices for preparing and organizing documentation

Collaborate early and often

Collaborating with your auditors early in the process helps ensure that the PBC list is comprehensive and tailored to your company’s unique financial reporting structure. This collaboration can help you anticipate any additional requests that may arise during the audit and give your team a head start in gathering necessary documentation. Engaging auditors before jumping into running reports or gathering documents  allows teams to clarify the format, level of detail, and specific expectations for each request, and will ultimately lead to a more efficient audit.

Organize documents electronically

With the shift toward digital and remote audits, having all your documentation stored electronically in a centralized, well-organized system is crucial. Consider using document management software that allows for efficient categorization, tagging, and searching of financial records. The system should also enable easy sharing of large files with your auditors while maintaining strict access controls for sensitive information. The ability to quickly pull reports and documents in the format the auditors prefer can prevent bottlenecks and make the audit process smoother.  Set up folder structures and naming conventions that mirror the PBC list categories. This will make it easier to cross-reference requests with the corresponding documents, reducing the back-and-forth with your auditors.

Stay ahead of deadlines

Meeting deadlines is critical to keeping the audit on schedule. Consider assigning point persons for different categories or sections of the list to ensure accountability and avoid bottlenecks. Utilizing an audit calendar may be useful to keep everyone involved on the same page with key deadlines and milestones.  You should also schedule regular check-ins with both your team and the auditors to track progress and address any emerging issues before they become major delays.

Ensure information is complete and accurate 

Avoid providing information that is incomplete as it can be  just as disruptive as providing late documentation. If auditors receive incomplete records, they may need to pause their work or issue follow-up requests, which not only causes delays but can increase audit fees as well.

Communicate and adjust

Audits often involve surprises—unexpected requests for additional documentation or the need for clarifications on certain transactions. Establishing open lines of communication between your team and the auditors can help you navigate these requests in a timely manner. Regular communication will also allow you to anticipate new requests, make quick adjustments to the PBC list, and stay proactive throughout the audit process.

Steps to strengthen internal controls

Remediate prior deficiencies

Start by reviewing the previous year’s audit findings. Identify any internal control deficiencies and ensure they have been remediated. 

Ensure documentation exists for every control

It’s critical not only to have effective controls in place but to maintain proper documentation and support for the design and operating effectiveness of each control. Every control should have clear documentation outlining its purpose, design, and how it operates within your financial reporting environment. This includes who is responsible for performing the control, how frequently it occurs, and what evidence is retained to support its execution.

Perform internal testing of key controls

Conduct internal testing before the audit to identify and address gaps. Testing should assess whether controls are operating as intended and if sufficient evidence exists to prove their effectiveness. This proactive step helps avoid surprises when auditors arrive.

Adapt to changes in operations

Consider how changes in operations—such as system implementations, acquisitions, personnel, or organizational changes—impact processes and internal controls and adjust them accordingly.

Best practices for performing reconciliations

Reconcile key accounts monthly

Don’t wait until the year-end to begin reconciliations. Performing monthly reconciliations ensures that errors are caught early and corrections are made in a timely manner, preventing small discrepancies from becoming large issues at year-end.

Investigate and document reconciling items

Every material reconciling item should be fully investigated and documented. Simply adjusting accounts without understanding the cause of the discrepancy can lead to repeated issues in future periods. Proper documentation should include a detailed explanation of the discrepancy, how it was identified, and the steps taken to resolve it. 

Use automation where possible

Automating parts of the reconciliation process can reduce manual errors and save time. Many companies use automated tools to flag discrepancies and streamline the reconciliation process, making it easier to manage large volumes of transactions.

Ensure appropriate segregation of duties

Have reconciliations reviewed by someone other than the person preparing them. This extra layer of oversight ensures that reconciliations are accurate, complete, and free from bias. Independent reviews help maintain the integrity of the reconciliation process and provide additional assurance to auditors, who often look for evidence of review and approval when testing key reconciliations.

How technology can boost audit efficiency

Centralized document management 

In today’s fast-paced audit environment, having a centralized document management system is crucial. These systems allow companies to store and organize all audit-related documentation in one accessible, secure location. Beyond just storage, modern document management platforms often come with features like version control, real-time collaboration, and audit trails, ensuring that auditors can access the most up-to-date documents when needed.

Leveraging AI for data analysis and risk detection

Artificial intelligence is revolutionizing audit preparation by enabling companies to automatically analyze large volumes of financial data, looking for anomalies, trends, or compliance issues. These tools can highlight irregularities that may otherwise go unnoticed through manual analysis, allowing your team to address potential risks before auditors arrive. AI can also assist with more complex accounting tasks, such as analyzing long-term contracts, assessing compliance with accounting standards, and flagging inconsistencies across various data sets.

Automation in data gathering and reporting

Automating the data gathering and reporting process through ERP systems and audit software can drastically reduce the manual effort needed to compile reports for auditors. By integrating financial data with other business operations, companies can generate reports quickly, with real-time updates on key metrics. Many ERP systems also allow for direct access by auditors, which can reduce the volume of requests you receive and allow for a smoother flow of information.

Real-time oversight through continuous monitoring

By using AI and other technology tools, companies can implement continuous monitoring of their internal controls, financial transactions, and compliance with accounting standards. Continuous monitoring allows you to catch potential issues as they arise, rather than waiting until the annual audit to identify them.

Tips for handling surprises and delays

Address surprises promptly

Audit surprises, like unexpected discrepancies in financial data or the discovery of outdated accounting processes, can derail timelines if not addressed quickly. Rather than waiting for auditors to escalate an issue, proactively review any concerns brought to your attention. Set aside time to troubleshoot the issue and provide the necessary information to support your financial statements. The faster you react, the sooner the audit can get back on track.

Designate points of contact

Assign a dedicated team member (or team) to act as the go-to resource for auditors. This person should be well-versed in your company's financial data, operations, and accounting practices. By having a specific point of contact, auditors can quickly get the information they need without unnecessary back-and-forth, speeding up resolution times. Make sure these points of contact have access to relevant documents, schedules, and personnel.

Adapt to auditor requests

As the audit progresses, auditors may identify areas where further analysis or additional procedures are needed. Rather than seeing this as a setback, approach these requests with flexibility and a problem-solving mindset. Being adaptable to new audit requirements—whether it's extra documentation for a specific transaction or updated calculations—can prevent drawn-out delays and keep the audit process flowing smoothly.

Prepare for significant changes

Major organizational changes, like mergers, acquisitions, or large capital expenditures, often require additional audit procedures. Preparing for these changes in advance is critical. Make sure your accounting records and documentation are updated to reflect these events, and notify auditors early on so they can allocate time and resources accordingly. Addressing such changes upfront avoids the last-minute scramble that can lead to bottlenecks.