Preparing for Your First Financial Statement Audit

Undertaking your first financial statement audit will be a rewarding process for your organisation. With the right auditor and preparation, financial statement audits are a great opportunity to provide stakeholders with assurance, reliability, and trust. This process improves transparency of financial data, helps develop operational efficiencies, identifies potential risks, and ensures compliance with relevant laws and regulations.

Whether you’re a CFO, part of the finance team, management, or those charged with governance (TCWG), our tips are sure to equip you to navigate the financial statement audit process smoothly and confidently.

Key Benefits of a Financial Statement Audit

Your first financial statement audit can be a rewarding experience. By organising your financial records, reviewing internal controls, communicating effectively with your auditor, preparing your team, and conducting a pre-audit review, you set your business up for success. Some key benefits of the audit process include:

• Ensure Financial Accuracy and Compliance: Financial statement audits help ensure that your financial statements are accurate and comply with accounting standards, reducing the risk of errors or fraud and improving the reliability of your organisation’s financial data.
• Evaluation of Internal Controls: Auditors evaluate your internal controls to identify any weaknesses or inefficiencies. Recommendations from this evaluation can enhance your processes and safeguard your assets.
• Boost Credibility and Trust: A financial statement audit boosts credibility with investors, lenders, and other stakeholders, potentially leading to better financing opportunities and partnerships.
• Identify Cost-Saving Opportunities: Through their analysis, auditors may uncover inefficiencies or unnecessary expenses, offering insights into potential cost-saving measures.
• Strategic Operational Feedback: Auditors provide valuable feedback on your business operations, offering strategic advice that can improve performance and guide decision-making.

To fully benefit from a financial statement audit, consider these top recommendations:

1. Engage the Right Auditor for Your Financial Statement Audit

Engaging the right auditor is the most crucial step to ensuring your first financial statement audit is a success. We recommend finding someone you can communicate well with, and who truly understands your business. This includes understanding how you operate day-to-day, your business values, and strategic plan. A well-chosen auditor offers much more than compliance. A quality financial statement audit by an experienced auditor can provide valuable insights for your business’s overall success.

Here are some key factors to consider when selecting your auditor:

• Required Registrations: Ensure your auditor holds the necessary certifications. For example, if you need to comply with the Corporations Act 2001, your auditor will need to be a Registered Company Auditor (RCA) with ASIC. In other cases, other legislation or grant funders may only require your auditor to hold a CA or CPA qualification.
• Industry-Specific Experience: Does your auditor have experience with similar organisations in the same industry? This is crucial for ensuring they deliver an efficient financial statement audit and offer valuable industry insights.
• Strong Communication Skills: The auditor and their team should possess strong communication skills to ensure a seamless process. It’s important that any recommendations made are understandable and actionable.
• Reputation: Look into testimonials from current and former clients to determine if your auditor appears trustworthy and dependable.
• Use of Technology: Does the auditor utilise data analytics and modern technology to enhance the process, such as audit software or online document checklists?

2. Communicate Effectively with Your Auditor

Once you’ve engaged an auditor, early communication is key to ensuring a smooth and successful financial statement audit. We encourage you to schedule a meeting, either online or in person, to introduce the engagement team, confirm the timeline, and discuss the audit process, including the information that needs to be provided and expectations for both your team and the audit team.

During the audit, don’t hesitate to ask questions or seek clarification. A great tip is to set up recurring check-ins with the audit team to discuss progress and address any questions. This approach ensures that audit procedures are completed on time, minimising risks of delays.

3. Organise Your Financial Records

Ensuring that your financial records are well-organised and readily available is crucial to a successful financial statement audit. Auditors will need to examine a range of documents, so having these records properly filed and easily accessible will avoid delays. It’s a good practice to keep an electronic copy of all records, as auditors typically request them in this format.

Here are some tips to organise your financial records:

• Use your accounting software’s features to maintain digital records, such as attaching invoices and payroll documents.
• Create a folder specifically for audit documentation, labelled ‘audit FY20XX,’ to easily provide information to your auditor and roll it forward each year.
• Implement a consistent filing system, categorising documents by type, date, and relevance.
• Back up all critical financial documents using cloud storage or external drives.

4. Document Your Internal Procedures and Internal Controls

Before the audit begins, ensure that your internal procedures related to finances and operations are clearly documented. Your auditor will require these documents to understand your processes, ensure they are consistently implemented, and identify any deficiencies that may result in errors or misstatements.

You may also find opportunities to improve your internal controls during this documentation process. Consider:

• Dividing financial responsibilities among different employees to prevent errors or fraud.
• Reviewing approval processes for expenses, purchases, and payroll to ensure they align with company policies.
• Regularly reconciling your bank accounts and financial statements to catch discrepancies early.

5. Conduct a Pre-Audit Review

A pre-audit review can help identify potential issues before the auditor starts. This review can be conducted by someone independent of the finance team, such as the Treasurer or a Director. By reviewing your financial records and internal controls as if you were the auditor, you can catch and correct any mistakes before the actual financial statement audit.

A pre-audit review should include:

• Financial Statement Review: Ensure that your financial statements are accurate and comply with accounting standards.
• Policy Compliance: Verify that your business complies with all relevant policies and regulations.
• Document Readiness: Check that all required documents are complete, accurate, and ready for the auditors.

Why Specialist Firms Provide Higher Quality Financial Statement Audits

Financial statement audits have become more specialised as regulatory requirements grow. Small-scale practitioners may find it challenging to keep up with industry standards, making it essential to choose a specialist firm. Larger firms generally provide higher audit quality due to their experience and expertise in managing complex audits.

At National Audits Group, we are specialists in managing financial statement audits. We deliver high-quality services that help you navigate the regulatory landscape. Contact our team today at 1300 734 707 to learn how we can assist your business.

Kate Grimson, Audit Manager, National Audits Group

Further Reading: Internal and External Auditing: Why Are Both Important?