Preparing for a Successful Audit: What You Need to Know as A Business Owner

The thought of an audit can make a business owner nervous. Some consider the process time-consuming and stressful as well. But this need not be the experience with the right preparation. A basic understanding of the purpose and process of an audit can take out the stress. As a business owner, you need an audit to provide an assurance to your investors, bankers and tax authorities and even to yourself regarding the reliability of your financial statements. For instance, an audit will help to simplify your tax returns or identify those tax elements you can avoid. It can also help to improve your profit margins by eliminating unnecessary expenses. Your bankers also need your audit reports as a proof of your ability to repay a loan on schedule. In this regard, you need to prepare adequately to ensure your business is audit ready. This article will outline some helpful tips you need to know when preparing for an audit.

Maintain Accurate Record of Your Accounts

Before the audit, you need to ensure that all your transactions are accurately recorded and the supporting documentation is readily available. Some of the supporting documents you need to keep include bank statements, invoices, receipts as well as contractual agreements from which you received funds or made payments. As a business owner, especially a start-up, there is the real tendency to make a mistake of mixing your personal and business finances together. It is a sound business practice to keep separate accounts as a clear distinction of transactions will simplify documentation in the audit process and demonstrate your commitment to financial transparency. A meticulous effort at maintaining a well-organized record of transactions can streamline the audit process to save time and cost. In a situation where you have an integrated management system or an accounting software, you need to verify and confirm that your transactions are up-to-date and error-free. You also need to review your previous audit report to address any recommendations to prevent reoccurrence of same concerns from being uncovered in the next audit engagement. Make sure also that your closing balances of your previous year is equal to the opening balances of your current year.

Review Your Internal Controls

As part of the audit preparation, a business owner must call for an evaluation of the company’s internal controls to address any weaknesses or deficiencies. Internal controls entail procedures and policies designed to protect your business operations from fraud and to promote accurate financial reporting. Indeed, internal controls encompass processes regarding accounting, payroll and human resources management. Where there are deficiencies, they can be corrected by tightening controls to prevent reoccurrence of same errors. Indeed, effective controls can occasion improving documentation, ensuring multi-factor authentication (access controls) as well as segregation of duties. Strong internal controls not only enhance the efficiency of your business operations but also ensure accountability for every transaction.

Reconcile Your Financial Transactions

Prior to the main audit, a business owner needs a reconciliation of accounts to identify and rectify any potential issues in his financial transactions. Reconciliation will help to identify any discrepancies or financial irregularities and ensure all transactions are accurate and accounted for. Reconciliation will not only help to maintain the integrity of the audit process but also provide a true record of information on a company’s operations and financial standing. As an accurate record of accounts engenders smooth audit process, it is imperative for a business owner to follow best practices for accounts reconciliation through regular reviews, effective documentation of transactions and controls.

Integration of technology or software applications with business processes has equally eliminated the manual process of reconciliation of accounts. A business owner can also employ accounting or auditing managed IT infrastructure services from a reputable third-party to reconcile their accounts involving huge volumes of transactions and multiple accounts. A clear example is Recksoft, which is one of the modern and robust software solutions any business owner can leverage on to overcome frustrations and bottlenecks usually associated account reconciliations. It can handle millions of transactions in a few seconds and guarantee high precision of results. It ticks the box in terms of its security, integrity and reliability of accurate results. The core objective is to ensure all your ledger balances are correctly stated before the audit.

Ensure Effective Communication

Audits are not meant to be punitive or an avowed insinuation of wrongdoing to start with, but to provide an assurance and maintain the integrity of financial reporting. Therefore, there is no need to be apprehensive of the process. To achieve a successful audit outcome, a business owner must maintain an effective communication with relevant stakeholders. Thus, open communication will enable you to provide any additional information or documentation required to ensure transparency and orderliness throughout the audit process. Your communication with the auditor will allow you to discuss any potential issues to make the process less stressful and save time. For instance, an auditor will need a comprehensive understanding of your business operations and financial records. Being open and transparent with communication will ensure a successful audit outcome. The auditor can draw conclusions based on incomplete or incorrect information provided by the auditee, and this can lead to what is commonly referred to as a “scope limitation” or “misstatement” in the audit process. Such challenges can be effectively prevented through open and transparent communication throughout the audit process.

Familiarize with /Follow Standards

Accounting standards and legal or regulatory requirements are updated regularly. A new reform in accounting, tax or auditing standards could invariably impact your business operations. As such, you need to familiarize yourself with those standards to understand the significant amendments and expectations or impacts on your business. In effect, you will be well informed to align your financial reporting practices with new and approved auditing standards and, therefore, minimize the risk of non-compliance and the associated penalties.

You Need an Auditor

As a business owner, you need the services of a professional accountant or an auditing firm which comprises a team of professionals to examine your books. They have the expertise to appreciate accounting, tax and auditing standards, and equipped with the necessary tools to navigate the complexities of business audits. What’s more, they can identify potential issues and provide you with the guidance on how to address them. They add value to your business by reviewing your financial statements and offer invaluable insights to optimize your financial strategies. Apart from that, they can help you to interpret audit findings and provide suggestions to enhance your company’s operations. It is a statement of fact that business owners who are skeptical of engaging the services of auditors have encountered regulatory and other compliance bottlenecks which could have been avoided. For enhanced profitability and long-term business sustainability, it is advisable to engage the expertise of a reputable accounting and auditing firm. Utilize the audit period as an opportunity to pose pertinent business inquiries and elevate the overall standing of your company.

Takeaways

1. Payroll Precision:

• Scrutinize all payroll expenses and obligations, encompassing PAYE, SSNIT, etc.
• Conduct a meticulous recalculation, addressing any disparities in pension computations compared to SSNIT figures.
• Resolve discrepancies to ensure accurate financial records and compliance.

2. Fixed Assets Management:

• Review fixed assets, depreciation expenses, and associated liabilities with meticulous attention.
• Maintain a comprehensive fixed asset register, documenting acquisition dates for each item.
• Ensure each asset is treated distinctly for precise and reliable depreciation calculations.

3. Payables and Receivables Alignment:

• Revisit contracts and invoices, aligning each customer or vendor with the initial agreement.
• Scrutinize adherence to contracts, particularly in receivables, identifying potential issues like bad debts.
• Consider provisions for bad debts where necessary, ensuring a realistic and accurate financial representation.

4. Strategic Business Inquiries:

• Utilize the audit period as an opportunity to address lingering business questions and concerns.
• Elevate your company’s performance by seeking clarity on operational aspects, financial health, and strategic direction.
• Leverage insights gained during the audit to optimize your business processes and enhance overall efficiency.

Conclusion

Ultimately, preparing for an audit can be less stressful when you follow those tips. Since, a business audit helps a business owner to better understand the operational and regulatory dynamics of their business and how to manage emerging risks, maintaining accurate financial records is the starting point. Even so, understanding those processes is crucial to a successful audit outcome of any business, regardless of its size. As a result, it should not be considered as a misplaced priority or a waste of money or time. Audit is indeed, a functional part of every business’s regular operations and facilitates effective financial reporting for informed decision-making.

BERNARD BEMPONG 

Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.

Our Office is located at Lagos Avenue, East Legon, Accra.

Contact: 233 302 528 977

                 233 244 566 092

 Website: www.jsmorlu.com.gh

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