The word “audit” always rings a bell and stresses people who consider it to be an investigation or a process that monitors the efficiency and security of a company. An audit does find risks and vulnerabilities but this is done to identify wastages, bottlenecks and find solutions that help companies to achieve their goals.
A. Benefits of Audit
An audit is beneficial to the firm as it:
- Verifies that the business information is secure and reliable in the interests of various stakeholders
- Evaluates efficiency of operations and processes
- Verifies that the assets of the firm are protected and put to the correct use
- Checks for inefficient processes and procedures
- Detects non-compliances and defaults if any
- Provides recommendation that help businesses perform better
Even though the audit has numerous benefits, companies very rarely opt for a voluntary audit process because it is either expensive and/or time-consuming. However, under certain circumstances it becomes necessary for companies to go for an audit mainly due to the following reasons:
1. Compliance/ Regulatory requirement:
Companies are required to audit their books of account and records when they cross a particular threshold, such regulatory requirements force companies to go for an audit process to comply with compliances requirements and make it easy for companies to carry on their business with ease in their region of operations with minimum government control.
2. Mergers/ acquisitions:
Any company that goes into mergers and acquisitions would arrange for an audit primarily because the buying company would require audited results, audited results help to increase the share price of a company and thereby increases the selling price.
3. Bank loans:
Not all bank loans require audited results, but based on the size of the company, its business ventures, or the amount of loan required; banks may require audited results to sanction loans for companies.
4. Public Issue:
A company that is planning to go public with its issue of shares needs an audited balance sheet to get listed as per the stock exchange rules and regulations.
B. When should a firm think about the audit?
A company should initiate an audit as soon as:
- A bank or investor requires you to do so.
- Companies reaching particular turnover or reaching the level of a particular activity as specified by various laws and regulations of the land.
- The company needs to raise capital
- When a company wants to sell its business in part or as a whole.
- During the closure of a financial year.
Just realizing that your company needs an audit doesn’t make a company audit-ready, to be audit-ready a company has to ensure its audit strategy is in place, it has all documents ready, it has dedicated personnel to attend to the auditors’ queries, etc. The more prepared a company is, the more quickly and smoothly the audit can be completed.
C. Points to Adhere before an Audit
A company has to ensure that the following points are adhered to before it is ready for conducting an audit:
1. Collecting data and information:
An audit is a comprehensive check of accounts, processes, operations, and compliance. It requires a lot of data and information; hence it is important that every information, process, and transaction are properly categorized and kept organized so that it is readily available as and when required during the process.
2. Professional assistance:
The fastest way to plan and organize an audit process is by hiring a professional team of experts who can guide the company through the entire process and help the company in quick problem-solving.
3. Closing the books of accounts:
Books of accounts should be closed regularly i.e. monthly or quarterly and not just at the end of a financial year, companies both large and small should develop the practice of closing their books periodically so that problems if any are identified early and also this becomes a regular practice making the process easy with least queries.
4. Preparing a closing checklist:
A closing checklist should be prepared and followed right throughout the year so that important entries are not missed. A checklist helps to keep documents, financial statements, and other necessary information ready for the process; it also helps in completing time-taking and complex audit areas first.
5. Internal controls:
Before going for an audit a company has to ensure that strong internal controls are in place. An organization should make a control assessment to ensure that the established controls are operational and effective so that there are limited inaccuracies and inefficiencies in business operations.
6. Bank and Balance sheet Reconciliations:
A company should regularly engage in bank reconciliation as well as balance sheet reconciliations, a clean balance sheet indicates that the financials are healthy and bank reconciliation helps to identify errors in accounting if any. The regularity of these reconciliations keeps errors at bay and helps in fixing processes throughout the year rather than waiting for the auditors to point out discrepancies.
7. Creditors and Debtors aging review:
This aging review should be done regularly to establish the regular inflow and outflow of funds and helps to make any adjustments if required with respect to excess or shortage of funds.
An audit involves the establishment of document information with the physical existence of the same. If companies perform stock and inventory verification on a monthly or quarterly basis then it is easier to get approval from the auditor.
9. Asset valuations:
Assets have to be valued correctly, it is important to check if all receivables are recoverable and if not proper provision for doubtful debts has to be done. Fixed assets need to be depreciated and impaired appropriately. Proper valuations addressed before the year-end ensure that proper procedures are in place making the audit process smooth.
Since every business is unique and has its own set of challenges, every company would have to keep many things in place before an audit. However, the above guidelines provide a regular framework that will help to make any organization to be audit-ready.
So if you are planning to get your company audited look no further, we at Diligen with our financial experts partner with you and help you throughout the process. Our team of experts will guide and educate your finance team about your business issues and deliver all the audit requests on time. Our teams of professionals help clients right from being prepared before the beginning of the actual audit and assist them in handling their financials properly so that the audit process takes place as planned. Whether you want to do random audits, scheduled audits, internal or external audits Diligen is equipped with both technology and manpower to guide, assist and help you through the entire audit process so that you are relaxed during the audit.