Many people think of the annual visit of the auditors as a stressful and worrying time, but it doesn't have to be that way. Whether you've had an audit before or this is your first audit then there are some things you can do to prepare and make sure the process goes as smoothly as possible.
An audit is a method of giving confidence to the shareholders that their money is being used in a reasonable manner. It won't guarantee to uncover fraud, but instead will look to see if there are enough management controls in place that fraud is minimised. Audits are also used by external stakeholders to ensure that the company they are looking at has true and fair accounts.
Many companies in the UK don't require an audit, if your company has a turnover of less than £6.5 million, assets of less than £3.36 million and average less than 50 employees then an audit isn't required. You will need to complete an Audit Exemption Statement and some types of company may still be required to have an audit anyway or their shareholders can ask for one.
There comes a time however when a firm can no longer avoid the annual check and the first time round this can seem like a daunting prospect.
The very first thing to do is to choose an audit firm. Many companies will have accountants that already deal with issues like taxation and so the obvious answer is to use the company that you already have a relationship with. It's a little understood fact however that not all accountancy practices can carry out an audit. To know more about audit firm Singapore, check this out.
Planning the audit
One of the cornerstones of auditing is planning and your auditors will set an audit planning meeting to enable them to sit down with you and discuss your company and get a little bit of background. This will enable them to understand any particular issues that may need looking at and to work with you on timings and locations. You can use this meeting to find out how they intend to approach the work and what resources they'll need. Remember that the whole process should be seen as a collaboration, the auditors aren't there to catch you out and so approaching it as a conversation will produce a much more useful outcome.
Your auditors will need some space to work, you'll need desk space with power so they can plug in laptops. They will be using files and folders so a good sized work space is useful, and they will need access to your accounting staff so somewhere reasonably close to finance is vital. Remember that you are paying for their time, so anything that reduces the amount that they are on site is a good thing from a financial and a disruption point of view.
For most companies it will become clear that they will need an audit long before the end of the year and planning should start before the start of the financial year in question.
Getting things in order
In terms of the accounts your auditors will be checking accuracy, controls and treatment. Make sure that all invoices are authorised, recorded and stored correctly, that payroll changes such as salary increases have a clear audit trail and that decisions around the accounting treatment of items in the books are fully documented.
All of your files need to be clearly marked and in logical order. Please don't expect the audit staff to search through random piles of paper as they are likely to see that as a lack of controls. The more searching they have to do, the more your audit will cost, especially if you have not negotiated a fixed fee.
It is worthwhile producing an audit file throughout the year. This should contain copies of invoices for fixed asset purchases and sales, contracts entered into in the year, leases, board minutes, management accounts for the year and at the minimum the final trial balance for the period end. If you do this as you go along during the year then it becomes much less of a chore.
For the final period end of the year, finance should prepare an end of year trial balance. This will form the jumping off point for the audit team so it's worth having a review and making any adjustments in advance of the visit. Think about balances that are the wrong way round (debit balances that should be credits and vice versa), and things that might seem strange like large directors accounts. Each of the balances should have a separate schedule showing what makes them up and this should of course match what is shown in the Trial Balance.
Again, this is merely a jumping off point so you'll need to expect that these will lead to more tests but giving as much information up front increases the impression of a professional finance team. To make things easy, speak to the auditors and find out how they would prefer to have the documentation. Usually you can expect that they will want at least the trial balance in electronic form but may also want schedules and other items in this way.
Take a look at all areas of the accounts that require management judgement. Does the fixed asset policy seem reasonable? Has the accruals process been applied consistently? Do the prepayments stack up? If you are happy that things are as they should be and that you have sound reasoning behind your decisions then there is no problem, if you have doubts then speak with your audit partner.
Once the financial accounts are in order then you'll need to appoint a member of staff as the point of contact. Let the audit firm know who to speak with and their contact details. This will keep disruption to a minimum with the audit team approaching one person when they need information rather than any random member of the finance staff. Make sure the point of contact is included in the audit planning meetings too.
Finally make sure the staff members know that an audit is being carried out. The Audit field staff may be on site for a while so it's natural that people will wonder who the new guys in suits are. Unfortunately this is the way that negative rumours can start even if it is a relatively routine accounting task so letting non finance staff know what is going on beforehand will head these rumours off before they start.