Financial audits get a bad rap. While certainly meticulous and often stressful, an audit shouldn't invoke absolute angst or dread in corporate finance teams. With the right preparation and mindset, organizations can transform an external audit from a daunting, drawn-out exercise into an opportunity for strategic insights.
Simply put, if CFOs, controllers and other finance leaders implement a handful of straightforward best practices before, during and after an audit, they can maximize efficiency and insight for everyone involved. The results are faster, more cost-effective audits, improved relationships with external auditors, and a more strategic perspective for better decision-making.
Get an early start
Beginning preparations at least six months in advance creates a culture focused on audit readiness. As part of this process, understand some of the more significant requests from your auditor, including any changes from prior audits, and assign cross-departmental leads to prepare or gather the necessary documentation and avoid last-minute fire drills chasing down records. Likewise, implement regular status check-ins on timelines and milestone completion, using interactive dashboards to monitor progress.
Early engagement also allows an accounting and finance team to build rapport with auditors, clarifying expectations upfront. Scheduling periodic meetings with auditors to address potential issues will create even greater efficiencies, really driving home the notion of a true partnership — albeit an independent one — between a company and its auditors.
Assess controls and risks
Well before auditors arrive, accounting and finance teams should conduct thorough self-assessments focused on the risks of material misstatements in their processes, along with the design and implementation of internal controls to address those risks. Documentation is crucial here, where teams should regularly test control functionality while tracking any changes in procedures. Along the way, encourage candid evaluations without fear of criticism or retaliation since the goal is to continuously strengthen oversight and reduce risks of error — or worse, fraud — even if it means lightly stepping on a toe or two.
In this critical pre-audit phase, common trouble spots include revenue recognition, new or modified significant contracts or agreements, asset impairments and expense underreporting, to name a few. But risks extend beyond numbers, of course, encompassing cyber threats, market volatility, supply chain crises and more. In such cases, management should evaluate hazards through an enterprise risk management lens.
Verify data integrity
Even minor data discrepancies can raise red flags to auditors, so verifying completeness and accuracy across systems and processes is imperative. Automated validation checks can be extremely helpful in this regard, as well as carefully vetting an external partner's data handling and security capabilities. Also, maintaining stringent version control as teams compile reports will avoid confusion from version control mishaps.
In the bigger picture, while sampling techniques allow auditors to be more efficient, they still pale in comparison to what today's continuous monitoring technologies provide for entire datasets. Frequent automated reviews will identify potential errors far sooner than annual auditor visits. Therefore, such tools allow for deeper visibility while also lightening an auditor's confirmation burden.
Leverage technology solutions
Building on the previous point, several advanced software solutions can quickly and significantly bolster data accuracy and control environment monitoring. Game-changing solutions in financial reporting, planning,
Similarly, automation solutions can transform raw inputs into actionable intelligence in real-time to inform decision-making, while robust ERP systems can quickly synchronize accounts and standardize how transactions post.
Perhaps most importantly, technology can help organizations be far more transparent in their operations and reporting. To that point, automated validation checks can extract exceptions for quick resolution, analytics platforms deliver real-time insights, and blockchain-based systems establish ironclad records, all a boon to the entire audit process.
Consequently, these and other tools promote continuous transaction monitoring rather than traditional periodic testing, providing a more comprehensive level of assurance for an organization and its stakeholders.
Clarify judgments and estimates
Judgments in valuations or projections used in critical accounting estimates are rightfully top of mind for an auditor. That makes documentation and diligence essential, where a company must thoroughly detail the methodology and assumptions behind its estimates. This should include benchmarking figures against industry standards or peer groups, backing up market assessments and monitoring those key assumptions on an ongoing basis.
Specialists and experts can bring a high level of expertise and specialized knowledge to the estimation process. They often have deep experience in specific areas, including valuation, actuarial science, tax law or industry-specific regulations. This expertise is particularly valuable when dealing with more complex critical accounting estimates.
Centralize communications
Maintaining consistent contact will minimize ambiguity and miscommunication between preparers and auditors. Many companies benefit from designating a single point person to correspond with auditors, field information requests and resolve questions. This audit liaison serves as the hub for organizing status meetings and gathering responses to auditor inquiries.
With so many moving parts involved in an audit, this coordinator role eliminates confusion by funneling all exchanges through one validated channel. They remain the go-to resource for troubleshooting challenges and connecting auditors with the specialized expertise needed to address complex issues. In terms of the bigger picture, centralized communications uphold clarity, alignment and accountability across the entire audit engagement.
Formalize action plans
Doing the bare minimum and simply resolving audit findings leaves far too much on the table, wasting invaluable feedback a business can use to drive continual improvement. Instead, set up formal mechanisms for tracking remediation efforts and monitoring outcomes, assigning implementation owners across multiple levels of the organization accountable for execution.
Also incorporate insights from an auditor's suggestions into everyday workflows and long-term strategic planning. Similarly, develop key performance indicators tied to enhancing financial maturity and designate departmental "audit ambassadors" to instill readiness as a cultural cornerstone.
Remember, the most successful audit outcomes occur when leadership empowers teams to embrace auditors as partners, not adversaries. As such, stress transparency around shortcomings to strengthen capabilities organization-wide and utilize year-round to optimize performance. This way, audits become assessment tools for operational excellence, and not just regulatory hoops to jump through.
Bring in a partner
Finally, engaging an audit facilitation partner provides organizations with critical guidance through the entire process. Experienced third parties offer an impartial perspective focused on streamlining engagements and maximizing value, creating tailored audit game plans to enhance readiness while revealing new insights as well.
Advisory partners also perform internal readiness assessments with an auditor's eye. They help companies avoid common pitfalls, carefully managing an auditor's queries to reinforce financial integrity and accountability. Further, partners strengthen process maturity around document collection and risk monitoring, bolstering communication between a finance team, leadership and auditors as well.
In the end, an experienced audit facilitation advisory partner can ensure positive changes extend beyond mere compliance and into everyday operations, helping transform audit preparation and the financial audit itself into genuine strategy and value drivers.
