Hello Reader,

Your year-end closing activities are finally done, but now start another interesting and demanding part: the year-end audit!

How to get prepared for it?

Let me help you.

I have worked 7 years as an external auditor for PwC.
I know what external auditors want and how make the audit easier for both you and them.

So here is my mini guide on how to prepare yourself for your year-end audit!

And check the bottom of this email to get your free Audit Preparation Checklist.

Enjoy this edition,
Nicolas

Free webinar on ChatGPT for Finance

How To Be Audit Ready

As the audits are starting and adding pressure on finance teams, it's important to remind ourselves of the importance of being prepared for an audit.

The audit process can be a stressful and time-consuming experience, but with the right preparation and communication, it can be a smooth process.

Based on my experience from both sides (auditor and being audited), here are 10 practical advices on how to prepare your organization for an audit and how to manage an audit if you are the main point of contact.

#1: Understand The Process

Acquaint yourself with the auditing process and the auditor's expectations to better understand their inquiries and demands.

How?

Schedule a meeting before the audit to identify the audit's focus, how the auditor work,s and their methodology.

Then, define together:

• channels of communication
• necessary documents
• their delivery method
• primary contacts
• and a procedure for escalating any issues that may arise

#2: Get organized

Prepare all necessary documents and records before the audit, including trial balance schedules, event documentation, invoices, and other requested items.

Organize everything in one place to save time and reduce stress.

If you are new to audits, ensure your organization systematically maintains financial records.

See my checklist below to see the type of documents you need to prepare.

#3: Learn from The Past

Examine past audit findings to enhance preparation for upcoming audits.

Also, address any identified issues or deficiencies from previous years.

A good way to prepare for this is to have a lessons-learned meeting with your team internally and one with the auditors.

Then, utilize auditor feedback and internal discussions to strengthen internal controls, financial reporting, and compliance.

#4: Communicate Effectively during The Audit

Maintain clear communication with the auditor and don't hesitate to inquire for clarifications.

Understand that the auditor aims to objectively assess your financial statements and requires adequate understanding and evidence to validate your accounts.

Be open to their explanations of findings.

If you are not sure or disagree with the auditor's conclusion, present your evidence and reasoning.

Provide succinct, evidence-backed answers to their queries and promptly address any additional information requests.

Answering quickly often help prevent any unforeseen issues for both parties.

#5: Be Transparent

Maintain honesty and transparency with the auditor.

Proactively disclose any issues or discrepancies instead of waiting for the auditor to find them.

#6: Keep Records of The Audit

Maintain a detailed record of all communications and agreements with the auditor, including documents shared.

This will serve as a valuable reference for future clarifications.

Include in your audit log all meeting notes, phone calls, emails, and documents provided to the auditor.

#7: Areas of Focus

Auditors usually concentrate on key financial statement areas like cash, receivables, inventory, property, revenue, provisions, payables, and accrued expenses.

Ensure you have robust documentation for transactions involving management judgment, such as impairments, in each of these areas.

My tip is during the year to prepare your documentation with the audit in mind. It's easier to write down what and why something happened when it's fresh for you.

#8: Significant Transactions and Events

Be ready for in-depth reviews of major transactions and events from the year, like mergers, asset disposals, and significant financing activities.

Maintain proper documentation detailing the recording of these events in your financial statements. Prepare your documentation before the audit.

For minor transactions, consider a memo or email summarizing the event and its recording. For major events, ensure you have a management presentation to act as a memo and evidence of management approval.

#9: Allocate Tasks

To streamline the audit process, assign tasks and responsibilities within your team.

Allocate a team member to each line item of your financial statements and extend assignments to non-financial areas such as internal controls, significant events, and market updates.

Distribute preparation tasks too:
One member might gather necessary documents, while another handles communication with the auditor.

This organization will help maintain focus and efficiency.

Get the help of my checklist below to allocate the tasks.

#10: Leverage The Work for Other Types of Audit (Internal Audit or Tax Audit)

Remember, external audits aren't the sole type you may encounter.

Prepare your documentation and work results to be reusable for internal or tax audits, minimizing repeated efforts for different audit types.

You really don't want to have to prepare all of this documentation twice!

Bonus

Understand what is the role of Audit so you can work with them better!

Here are the 6 key roles of Audit:

1. Verification of Financial Information
2. Assessment of Internal Controls
3. Identification of Fraud and Error
4. Compliance with Laws and Regulations
5. Assurance for Stakeholders
6. Improvement of Financial Reporting

What Have We Learned Today?

1. Understand the Process: Learn the audit process, and auditor's expectations, and establish communication.
2. Get Organized: Collect and arrange all necessary documents and records efficiently.
3. Learn from the Past: Use past audits to enhance future preparedness and internal controls.
4. Communicate Effectively: Maintain clear, responsive communication with the auditor throughout.
5. Be Transparent and Keep Records: Ensure honesty and meticulous record-keeping for all audit interactions.

What was the most important learning of today?

​

Nicolas

​

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