Welcome back to our two-part audit series.
In Part 1 we covered the audit basics and saw all the ways that businesses can benefit from them. If you haven’t read it yet, then we suggest you check it out first, unless you’re the kind of person who likes to watch sequels before the original!
Part 2 is all about real world advice to help your business get the most out of an audit. You’ll see step-by-step how the external audit process works, and even get some great tips on how to prepare for one. Let’s jump right in.
When is the Right Time for an Audit?
Many companies choose to conduct financial audits annually. Setting up a system of regular audits is good business practice as routine audits build off of one another, making the process simpler and more efficient each time.
It’s kind of like getting your car serviced. If you stick to an annual maintenance schedule it’s much easier to keep the car running smoothly and catch issues before they cause major damage.
Even if a company is not performing regular audits as part of their general operations, there are still specific situations which can trigger Special Purpose Audits such as:
Selling a business
Approaching investors
Third party requirements from lenders, investors and regulators
Applying for business certifications or programs
Preparing for an Audit
Panic. Burn documents. Deny, deny, deny!
If this is your first response then just remember, auditors are here to help your business, not point fingers or assign blame.
Successful audits start with the right mindset, and honesty is the best policy. Hiding things from your auditor will just mean that opportunities for improvement are missed. Being ready to take a critical look at your company’s processes and methods will lead to frank and ultimately valuable discussions.
Once you have the right mindset, the next step is getting your books in order. It is a common misconception that auditors are like moles that you can release into your filing room to quietly tunnel through your books. Auditors are responsible for expressing an opinion on financial statements, but it is the management who is responsible for preparing them.
Organizing your financial records means documents are easy to retrieve when your auditor requests them, making the process faster and more efficient. Other key steps to preparing for an audit include:
Designate one person to be the main point of contact with the auditors
Audits often involve a lot of face-to-face interaction with key employees so strategic scheduling is important (do not pick the busiest time of year when everyone is consumed with internal projects)
Establish meeting rooms and interview times in accordance with the auditor’s requests
Produce a summary of any major changes that have occurred since the company’s last audit, such as accounting policies, management, operations and strategy
As you prepare for an audit, it is a good idea to reach out to your auditors so that you can understand their goals and take the necessary steps to help them complete the audit promptly and efficiently.
The Audit Process
Planning – This stage goes on behind the scenes before the onsite portion of the audit begins. It allows the auditor time to better prepare for the fieldwork stage and includes:
Reviewing previous audits
Industry research and gathering background information
Visiting the client’s premises
Preparing an audit strategy
Sending an engagement letter and an audit planning letter
Opening Conference – This will be the first onsite meeting between the auditor and the key personnel of the company. Its purpose is to go over the following points:
Review the company’s governance structure
Assess the key risk areas of the audit
Discuss objectives of the organization
Outline an audit plan
Obtain feedback
Make any necessary adjustments
Fieldwork – This stage is a bit like dinner at your in-laws, there’s going to be some awkward conversations! It is an auditor’s job to gather information in order to understand your business and accomplish the objectives of the audit. During this stage an auditor will:
Interview key personnel
Analyze financial documentation
Review and walkthrough internal control processes
Perform relevant testing
Reporting – The auditor will use the information gathered during their fieldwork to form an audit opinion, which comments on the presentation of the financial statements. Relevant findings will be reported in an Audit Findings letter, and recommendations will be presented in a Management Letter. These reports will be submitted to the management team for comments and to enable them to create a corrective action plan.
Closing Conference – This meeting will be between the auditor and the management team to discuss the audit report letters. The management’s comments and corrective action plan will be discussed, and any relevant clarifications will be made. After this meeting the final audit report will be distributed to the relevant parties.
Follow-up – When conducting audits annually, the next audit will involve a review to determine how successful the corrective action plan has been and to make any necessary adjustments. Alternatively, a review can be scheduled anytime after the audit at the specific request of the management.
Where Can I Find an Auditor?
You’ve already found one! Here at NVS we provide audit and assurance services to organizations of all sizes – from small, independent businesses to large corporations.
Our tailored audits involve a comprehensive review and analysis of your financial statements and related business records in accordance with:
Accounting Standards for Private Enterprises (APSE)
International Financial Reporting Standards (IFRS)
Accounting Standards for Not-For-Profit Organizations (ASNPO)
We provide a detailed and accurate picture of your organization’s current financial state, enabling you to make better, more informed financial decisions.
Our evaluation allows us to offer you valuable advice on how you can improve your internal control processes. Any irregularities will also be identified before they become an issue with taxation requirements or legal regulations.
Audited financial statements are a key component for financial institutions, potential investors or purchasers to facilitate a transaction that could help strengthen your business.
To learn more about how our audit experts can help your company, send us an email at letstalk@nvsca.ca.
