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Audit Readiness Checklist: 10 Things To Do Before The Auditor Arrives

Audit season often feels like a bundle of stress, unrealistic deadlines, and undesirable financial impacts. As you navigate the rush of gathering documents and reconciling accounts, it’s easy to miss the strategic potential available in this annual examination. 

By addressing audit preparation proactively, organizations can glean valuable insights, fortify their financial systems, and catalyze future growth, all while navigating the audit process smoothly. 

Here’s what you need to know.

What To Expect During The Audit

The purpose of an audit is to give stakeholders confidence in the health and financial viability of your organization. Goals may include ensuring transparency for investors and shareholders, determining investment readiness, fulfilling an insurance or compliance requirement, preparing for a merger or acquisition, or evaluating internal processes and financial performance. 

In addition to accomplishing these goals, the audit also helps you identify process gaps and opportunities for improvement. As you dig deeper into the financial state of your business, you’ll gain valuable insights you can use to inform strategy and decision-making.

The auditor will work closely with you through the following stages:

• Planning – This stage includes initiating the audit process, contracting with an auditor, and verifying auditor qualifications.
• Risk Assessment – The auditor will identify areas with a high potential for error based on industry nuances, regulatory issues, and the environment in which the business operates. This information will be used to inform the audit strategy.
• Audit Strategy – Once risks have been assessed, the auditor will create a strategy that includes testing internal controls, evaluating financial statements, allocating audit tasks, and creating a timeline.
• Testing and Gathering Evidence – During this stage, the auditor will conduct substantive testing of internal controls, financial statements, and account balances. This may include gathering third-party evidence of accuracy (such as bank statements), checking accounting calculations, obtaining confirmations from suppliers and customers, and examining balance and transaction records.
  

When these activities are complete, the auditor will form a conclusion based on their observations. The ultimate audit opinion should not be a surprise, since the auditor will be in close communication with senior management throughout the process.

Audit Readiness Checklist

Preparing for an audit is a meticulous and often time-consuming task. It’s critical that you have all documentation and reports readily available, that transactions and balances have been verified, and that you are ready to answer any questions the auditor may have. 

Here’s a checklist of 10 things to address as you head into audit season.

1. Nail Down Timeline – Because length and scope may differ and audit stages are not necessarily linear, it’s important to be sure you are on the same page with your auditor about timing. Each party should commit to a timetable that allows for sufficient preparation and documentation.
2. Evaluate Systems and Processes – To gather documentation and prepare accurate financial statements, you’ll need access to a wide range of data and reports. If that data is isolated in non-integrated data silos, it will make the audit process exponentially more difficult. You can solve this problem by automating and integrating the systems you use to gather, analyze, and store data.
3. Evaluate Capacity – Preparing for an audit places an additional burden of time and effort on your team beyond their regular daily responsibilities. This can lead to overwhelm and burnout if you don’t have sufficient bandwidth to manage all the moving parts. If that’s the case, you may need to partner with an outside firm that can come alongside you to assist with financial statement preparation and ensure audit readiness.
4. Gather Documentation – Accurate, complete documentation is the linchpin of a successful audit. Collect relevant financial documents, including ledgers, bank statements, invoices, tax documents, and receipts. Compile these in a designated file for easy access during the audit.
5. Review Internal Controls – During the audit, the auditor will test your internal controls for accuracy and reliability. To ensure that the process goes smoothly, take time to internally assess these controls beforehand to reduce the risk of inaccuracy.
6. Organize Financial Statements – Prepare your balance sheet, income statement, and cash flow statement according to GAAP guidelines. The auditor will assess these to verify that they accurately represent your business finances.
7. Reconcile Accounts – Verify account balances and investigate any discrepancies in bank statements, accounts payable and receivable, inventory, and other relevant accounts.
8. Verify Compliance – Assess compliance with relevant laws, regulations, and industry standards. This could involve tax compliance, regulatory filings, and adherence to accounting standards.
9. Conduct a Pre-Audit Review – Conduct an internal review or mock audit to identify potential issues and address them before the official audit.
10. Communicate and Clarify – Communication among internal stakeholders, investors, and auditors is paramount to a successful audit process. Healthy dialogue around audit requests, questions, and clarifications can expedite the process and ensure timely interactions.

Start Preparing Now

The key to ensuring a less stressful audit season and gaining the most strategic value from the process is to start preparing early. Create a plan, delegate tasks, and work together as a team to make sure you have all your bases covered. If you don’t have the internal bandwidth to get everything done alongside the daily work of the business, we can help! 

Contact us today to learn how we can support your team with financial analysis, process improvement, technical accounting, data integration, and much more.