Financial audits are a necessary process for organizations of all sizes and industries. While audits provide external verification that you’ve complied with the applicable laws and regulations, they also require a great deal of time and effort on your part.
Preparing for a financial audit can be stressful and complicated—but it doesn’t have to be. By following the 4 tips below, you’ll be ready to meet the challenges of a financial audit when the time comes.
1. Get organized in advance
No one likes to hear the words “We’re being audited,” or think about the extra work that it will entail. If you prepare for this possibility well in advance, however, financial audits will become a much more tolerable event for your organization.
Audits are significantly easier to handle when you plan and organize for them ahead of time throughout the year. Because audits can happen at any time, without any notice, it’s essential to deal with potential issues as they crop up, not when the auditor discovers them.
This includes resolving issues with account reconciliation in a timely manner. Failing to reconcile your accounts on a regular basis makes it more difficult to uncover the root cause of a problem during an audit, which only means that it will be longer and more complex.
2. Ask the right questions
Once you’ve been notified of an upcoming audit, you should open a dialogue with your auditor right away. Proactively getting in touch will get the relationship off on the right foot, as well as inform you about which steps you need to take.
Ask your auditor which documents they anticipate needing during the audit. This may include bank statements, account reconciliations, trial balances, inventories, and any other information that attests to your financial well-being as a business.
You should also ask your auditor about the expected timeline for the audit, including the estimated start, finish, and intermediate deadlines. The timeline of an audit depends on many factors—some that aren’t under your control (such as the size of your business) and some that are (such as how well you’ve prepared).
3. Have the right tools and software
Too many businesses experience challenges with their financial consolidation and close processes that are drastically affecting their efficiency and productivity, which presents serious obstacles in the event of an audit. For example, the slowest 25 percent of companies spent 10 business days or more on the month-end financial close process. That means they spend half their time every month just working on the financial close itself.
In many cases, these issues are due to sluggish, out-of-date applications, or the lack of adequate tools in the first place. Not only do technological issues hold you back during the rest of the year, they also slow you down during a financial audit. Your accounting software should be able to quickly generate the financial documents and reports that your auditor requires during the process.
4. Use a virtual data room
During an audit, you’ll need to share documents such as financial statements with the auditor in order to back up your version of events. However, file sharing solutions such as email, while convenient, are highly insecure: once the document is in the hands of a third party, you have no control or knowledge of who has accessed the document or who else they’ve shared it with.
Virtual data rooms (VDRs) are electronic repositories for sensitive and confidential documents that need to be shared with third parties during a financial transaction, such as an M&A deal or an audit. Using a VDR during a financial audit gives you fine-grained control over which users have access to which files. In addition, VDRs provide a “paper trail” showing when documents were uploaded and accessed, helping prevent any conflicts or disputes.