An audit can be a stressful time, and for good reason. It acts like a mirror, reflecting a company’s performance and providing an accurate picture in a report. However, it doesn’t have to be stressful because, like a test, the key is to be prepared. The goal is to ensure a clear, accurate reflection during the audit process.
For businesses on the path to growth, being audit-ready is a powerful component of strong financial health and effective risk management. It helps build investor confidence, ensure compliance with regulations, and ultimately contributes to long-term success and stability. And, a smart decision for businesses to always be audit-ready is to have an internal audit preparation checklist that in the most appropriate way, fits the internal business operation style. Because having a checklist helps standardise the process of being audited, it also makes the audit process more approachable.
This blog presents an audit preparation checklist for small businesses covering everything they need to be prepared for before an audit.
Audit Preparation Checklist for small businesses for audit readiness
Is the goal of the audit clearly understood?
The first step in effectively preparing for an audit is to fully understand its purpose and objectives. An organization might conduct its own financial statements through an annual audit. These are generally reviewed for compliance with applicable laws and regulations (including local and state authorities), and they provide organizations with an independent assessment of their performance. Clearly stating and defining the scope and objectives of an audit early on will ensure thorough coverage of all relevant areas and minimize potential miscommunication among all parties involved in the audit process.
When you know what type of risks will be associated with each audit, along with your objective for that audit, you will manage your time better during the auditing phase. By clearly outlining expectations and requirements to the entity being audited, it will assist both entities to have a smooth and orderly process throughout the course of the audit.
Are all financial documents organized?
Proper organization of financial records is vital for effectively conducting audits. By organizing all financial records into a single, well-structured, and easily accessible location, companies can save time and effort during the audit process by locating the required documentation more quickly, as well as minimizing disruptions. A clear, transparent business is likely to yield a positive audit outcome when proper internal controls and documentation systems are in place. Furthermore, companies that proactively maintain an effective internal records management system will be better prepared to conduct successful audits at any time of year.
Has a mock audit been conducted?
Mock audits or self-assessments are great ways for companies to prepare for their actual audits, helping them identify potential problems along with fixing them well in advance of their actual audit. The ability to conduct an extensive evaluation of your company before a formal audit also provides you with insight into the entire audit process and creates a level of comfort and confidence among all employees, which ultimately leads to a smoother and more productive audit.
Have all of bank accounts been reconciled?
Reconciliation of bank accounts is an important part of being audit-ready, as it aligns the business’s financial information with its bank statements to confirm their accuracy and consistency. Discrepancies found in the reconciliation process need to be investigated thoroughly and corrected as soon as possible. By reconciling bank accounts regularly throughout the year using consistent procedures, a business will have accurate financial information. In addition to confirming accuracy and consistency, regularly reconciling bank accounts ensures that the general ledger, balance sheet, and all other financial documents remain current.
Have all of the fixed assets been cleaned up?
The process of a “cleanup” on fixed assets consists of ensuring the physical assets match with the totals in both the Fixed Asset Register (FAR) and other records; verifying that each item has been correctly recorded as to changes in ownership/status, including acquisitions and disposals; and confirming all depreciation has been calculated accurately through verification of records relating to acquisition and disposal transactions, as well as by completing a physical verification of every item listed on the FAR. As fixed assets comprise a large portion of a company’s overall net worth, accurately recording them in the FAR is critical to compliance with generally accepted accounting principles (GAAP) and to avoid potential mistakes that could result in audit findings or questions regarding compliance with GAAP.
Are the employees familiar with the audit process?
A reference to the audit process will help your employees prepare to participate in health and safety audits. Understanding the audit process will help your employees prepare for audits and perform their roles during them. This is accomplished through a combination of employee training on their roles in the audit process, your departmental documentation requirements, and the importance of adhering to established internal controls, as well as developing employees’ understanding of how these aspects of the processes will aid them in being audit-ready. Employees will be better able to provide accurate information to auditors, understand their roles, and interact with auditors appropriately. Properly preparing employees will also reduce disruption to daily operations during audits; therefore, the flow of information to auditors will be seamless, supporting operational efficiencies, continuity, and productivity throughout the audit.
Have all internal controls been reviewed?
Auditors have the right to assess a business’s internal control procedures and review its financial records. Therefore, organizations must continuously evaluate and maintain their internal control systems. To address this, organizations should review all of their internal operational systems to ensure each one functions at the highest level and performs all necessary tasks for the organization’s success. Additionally, the organization must ensure an appropriate separation of duties among employees. Furthermore, employees should have access to adequate resources and support tools needed to perform their jobs effectively. Moreover, it is essential for organizations to keep written documentation of their internal control processes and regularly test their effectiveness to confirm that these processes are working properly.
Has the audit liaison been designated?
An individual appointed and designated as an audit liaison serves as the intermediary between a business’s internal team and the auditors from outside the business. The audit liaison is responsible for facilitating communication between the two groups during the course of the audit. Through the appointment of an audit liaison, companies have a better opportunity to provide timely and accurate information to the auditors, and for both parties to communicate openly, share information necessary to fulfil the auditors’ needs, resolve any concerns that arise, and be in compliance with audit requirements. As a result, audit liaisons are critical in achieving effective and efficient audits.
Conclusion
The purpose of an audit is to provide you with a report card on your current financial condition, but it is not just about what you got on the report card; it also identifies areas where you can make improvements. With an audit preparation checklist, companies can identify areas where they may have had gaps previously, as well as any discrepancies related to changing compliance regulations. By participating in the audit process, you can enhance your internal business processes, improve the accuracy of your financial records, and remain in compliance with the many requirements placed on you.
For a company to be successful, it should have a process for conducting regular self-assessments that include both its financial records and its internal business processes. When done regularly, self-assessments will enable an organization to continuously conduct proactive risk management, develop a culture of accountability and transparency, and create a more efficient and effective organization that can withstand external pressures. An audit can be transformed from a nuisance into a valuable, regular method to improve the organization and create long-term success continuously.
