Preparing for your first audit
Enhancing the financial integrity and sustainability of your business
Audits play a crucial role in enhancing the financial integrity and sustainability of a business. Whether you are after an audit to meet legal requirements or as a proactive measure, audits provide valuable insights into a company’s financial health, internal controls, and governance processes.
For those preparing for their first audit, understanding the steps involved and knowing what to expect can make the process straightforward and stress-free. It can be an intimidating exercise- this guide covers the basics from the purpose of an audit to effective preparation, ensuring your business is equipped to navigate the process with confidence.
- What happens during an audit?
- Preparing for your first audit
- FAQ’s
The purpose of auditing
Overall, a financial / statutory audit fulfils legal requirements where the company is required to have an audit but they also contribute to the long-term success and sustainability of an organisation through having more reliable information, better financial management and governance.
Read our article here on the benefits of auditing.
What happens during an audit?
An audit consists of several structured steps that are typically followed to ensure legal and regulatory compliance. Not every audit looks the same, and may be dependent on a number of factors. The below is based on a typical audit.
- Understanding / planning – Auditors will carry out preliminary planning to ensure a deep understanding of the business, its environment and internal controls. This allows the audit team to assess risks and determine an audit approach. Engage with your auditor early and certainly ahead of the year end you are having audited- this will make the process easier for both your business and the auditor as well as allowing time for any challenges that may arise. Some businesses may not realise that the audit encompasses so much, and that the opening balance sheet must be considered with the same rigor as the closing balance sheet.
- Internal control and risk assessment – Auditors will evaluate the internal controls and identify areas where they are week or ineffective. This helps with the overall risk assessment that highlights areas of higher risk of material misstatement. This risk assessment guides the audit focus.
- Initial information requests – Auditors typically upload a list of information requests to management in advanced of the audit fieldwork to a data sharing platform to get information and samples picked in advance of the audit.
- Fieldwork – Audit testing procedures are performed via detailed substantive testing, analytical procedures, observation and inquiry and document reviews to ensure accuracy and completeness of the financial statements and compliance with the required laws regulations.
- Findings report to management- Auditors will compile a list of all differences, discrepancies, weaknesses in internal controls and instance of any non-compliance. This report will be provided to and discussed with management so they can review and implement any changes to improve the financial reporting and internal control environment.
- Issue audit report.
Preparing for your first audit: step-by-step
Below, we outline the processes involved in preparing for your first audit. The process does not have to be complex and with the help of auditors and ensuring you are prepared, can be very straightforward.
- Establish a timeline with auditor to ensure each party is aware of the timeline and commitment to provide information.
- Assemble you team and have a key member of the team responsible for liaising with the auditors. Understand each person’s responsibilities in delivering information to the auditors.
- Understand the internal controls you have in place document the controls and processes.
- Compile financial information: –
- Access to records / general ledger
- Reconciliations of all balance sheet accounts with supporting documentation
- Gather information in respect of off-balance sheet arrangements such as operating leases and capital commitments.
- Stay flexible and responsive during the audit fieldwork or make the auditors aware of internal staff movements/working patterns. There will inevitably be further information requests, documentation requests and conversations to be had. As such to keep the audit progressing staff need to be regularly available to keep the audit timeline on schedule.
- Review audit process with auditors and implement any changes required for next audit.
Other considerations for your first audit, FAQ’s
Why and when do audits take place?
Typically, they take place because it is a regulatory requirement when the company meets the size criteria for an audit. But some businesses choose to have voluntary audits for best practice and as a ‘second pair of eyes’ over the finance function within the business.
What is a typical timeline for an audit?
This varies from client to client and whether there are any other client requirements such as filing audited accounts with other stakeholders (banks/shareholders etc). At the extremes some audits are completed within a month and others by the filing deadline of typically 9 months. Most sit within the middle of this and is based on a pre-agreed timetable that suits both the client and auditor.
Is auditing a legal requirement in the UK?
Price Bailey’s experts with specialist industry experience tailored to your business, can offer a comprehensive audit service to enhance your business’s profitability, financial transparency, strategy, and therefore financial growth. The process does not have to be complex with the help of our experts.
We can help
Contact us today to find out more about how we can help you