How to survive your annual audit
The auditors are coming.
For some, this is daunting news. Intruders in suits are going to occupy the premises and not leave until they’re satisfied that our annual accounts are a ‘true and fair’ representation of our financial performance. We’ll have to do what the pitch teams do and pull an all-nighter to get our house in order.
For others, it’s a breeze. Everything is in order because we operate with auditors in mind all year round. We even know what format they want our data in. No skeletons in our closet.
Wherever you sit on the audit-ready scale, there are some measures it’s a good idea to take in the run-up to the audit period and beyond. Our advice is that you:
See it coming
If you have an audit every year, plan for it all year round. Part of the auditor’s job is to get a feel for your business and its financial risk factors before they arrive on site. Have open communication channels with them throughout the year so that this is more of a pre-audit summing up exercise than a day-before-data-deluge. Similarly, be like the breezers above – adopt accounting practices that dovetail the needs of auditors so as to avoid any last-minute snafu.
Deal with any ‘previous’
Assuming this isn’t your first audit, let it be known that you’ve taken on board any recommendations and learnings from last years’ experience. Refresh your memory about what went well last time round and what wasn’t so great. Open a learnings file about this audit for the benefit of those who’ll be running the show next time round – it could be you again.
Flag up anything exceptional
Make the auditors aware of any events that materially affect your accounting processes. Examples could be a change to reporting requirements, a change of your business’s legal status such as going from a partnership to a limited company, receiving a grant, closing a department or selling off part of the business. If anything has happened that changes the way you prepare your accounts, your auditors need to know about it.
Involve your colleagues
Your auditor will probably give you a bunch of forms and templates to complete as part of their preliminary planning. And they’ll almost certainly want this phase ready for the first day of ‘fieldwork’ – the part of the process where they sit in your office poring over your figures and interviewing people. This could be complex, involving several colleagues and a multitude of deadlines. If so, collar a project manager for some expertise and RACI-based assistance. (RACI stands for responsible, accountable, consulted, informed.)
Be happy with what you give the auditors
Sounds obvious, but many businesses really do just shut their auditors in a room with a coffee machine and a mountain of paperwork they haven’t looked at and hope for the best. A self–review will reveal any areas that need clarifying before the audit begins and help you anticipate and prepare for any tricky questions. You may also find areas where you need expert advice yourself – and there’s no law against asking your auditors for an expert accounting opinion.
Be there for them
Once they’re in, make your auditors feel welcome. Ensure they have the space and IT support they need and that the relevant people are on hand to deal with the queries they’ll inevitably have. Plan yours and your team’s annual leave around the audit and arrange brief status meetings on a daily/twice-weekly basis while the fieldwork team is onsite.
Tie up the loose ends
As the audit team prepares its report following the fieldwork, they may still have queries relating to your accounts. At the same time, you may want the auditors to keep dates free to attend board meetings and/or your company’s AGM. At the very least, hold a post-audit wash-up meeting with them to exchange feedback and open the communications channels in advance of next year’s audit.
See what your peers are doing
We did a bit of asking around the creative comms industry to see how businesses in the sector approach their annual audit. Here’s what some of you said:
“Maintain files, clean ledgers and balance sheet recs and treat every month-end as if it were a year-end and you’ll have a clean and speedy audit.”
Sacha Prosser, Finance Director, Wednesday Agency London
“Creating templates in October is a massive time saver.”
Nate Lewin-Lloyd, Client Commercial Director, Superunion
“Don’t make an enemy of your auditors – the myth that they should be placed in a windowless room and left to drink cold coffee should remain a myth. Demand that your auditor is a partner to the business and remove the horrible feeling that, every year, you have a teacher marking your homework.”
George Rex, Commercial and Operations Director, Taylor James
“Look at your auditors as being part of good governance, not a nuisance. Work with, them, not against them. It always pays.”
Andrew Southcott, Group Finance Director, Captivate Group
“Ask the auditor in advance what they’ll need, then follow their format on your internal folders. Share this with the auditors and make sure you can justify everything with data. Find the auditors an appropriate room. And whatever you do, don’t sit with them!”
Sian Welsh, Financial Controller, Creature London
“At DesignStudio we run a full accounting close process every month, our year end close is no different to any other month. It means we don’t need to prepare for an audit.
Incorporating a full month end close process will ensure greater access and control over the finances and provide a solid foundation if you ever need to rely on your financial information beyond a year end audit.”
James Corney, Finance Director, Design Studio