For a business in the current environment, healthy financial records are tantamount to its success. Taking the time to put your account’s information in the best possible order can be significantly beneficial for your day-to-day operations, ensuring your financial reports are accurate and allowing for higher-quality auditing.
Whether your sector is juggling supply chain delays, skilled worker shortages or the pressures of rising inflation, the one thing you want to be sure you can rely on is your accounts data. It is crucial for businesses to ensure that their accounts are accurate and that financial reporting is generated from clean and up-to-date data.
This includes the ability to ensure payments are made on time, and non-payment on invoices is swiftly followed up on. It is especially significant for management and Those Charged With Governance (TCWG) to trust that their accounts include accurate information when it comes to forecasting profitability and any future planning for the business.
Luckily, there are simple steps that businesses can follow that may assist them in cleaning accounts and maximising audit efficiency.
How to prepare for an audit
Maintaining clean, accurate financial records is essential to improving audit efficiency and reducing unnecessary delays. Cleaning accounts supports smoother audits and provides greater confidence in reporting, decision-making and overall business performance. Here are some tips on how to prepare for an audit.
Prepare documentation before the audit begins
One of the most effective ways to improve audit efficiency is to ensure that all supporting documentation is prepared in advance. Auditors rely on accurate and complete records to verify balances, transactions and disclosures.
This includes:
- Bank statements and reconciliations
- Supporting invoices and contracts
- Fixed asset registers and depreciation schedules
- Loan agreements and repayment schedules
Having these documents readily available reduces back-and-forth queries and allows the audit to progress without unnecessary interruptions. It also supports a more structured approach to preparing for an audit, particularly during peak reporting periods.
Standardise processes across reporting periods
Consistency is a key factor in cleaning accounts. When processes vary from period to period, it becomes more difficult to identify errors, reconcile balances and maintain reliable reporting.
Businesses should aim to:
- Use consistent account classifications
- Apply the same treatment to recurring transactions
- Maintain standard templates for reconciliations and reports
- Ensure all team members follow the same processes
This not only improves data accuracy but also makes it easier for auditors to review information efficiently. Standardisation reduces the likelihood of discrepancies and helps ensure that financial records remain reliable over time.
Address issues early rather than at year-end
A common issue in financial reporting is leaving adjustments and corrections until the end of the financial year. This approach can lead to time pressure, missed errors and increased audit costs.
Instead, businesses should adopt a proactive approach by:
- Reviewing key accounts regularly
- Investigating discrepancies as they arise
- Updating records in real time
- Communicating issues early with internal or external accountants
By resolving issues early, businesses can significantly improve audit efficiency and reduce the risk of delays during the audit process.
Work with the right audit and accounting support
Having access to experienced professionals can make a significant difference when preparing for an audit. Whether through internal finance teams or external support, having the right expertise ensures that accounts are accurate and aligned with reporting requirements.
For businesses with limited internal resources, working with external specialists can provide additional support. This may include outsourcing certain reporting functions or engaging firms that focus on audit readiness and compliance, such as specialist audit providers.
Staying informed about broader regulatory expectations, including updates outlined in quality management and risk assessment standards, can also help ensure that your financial processes remain aligned with current requirements.
Utilise accounts software
Some of the best ways to clean up your accounts and financial records are through simple changes designed to make your processes easier, such as client onboarding. If your business is still relying on paper-based systems to input employee, client, trading partner or supplier data, you’re more likely to be exposed to human error resulting in inaccurate data.
Paper-based systems also have the adverse impact of appearing amateurish as well, which may reduce customer trust or hurt your business reputation. Switching to accounting software can make the process of onboarding client data much more efficient and streamlined, boosting audit efficiency. Accounting software significantly lowers the likelihood of human error resulting in inaccurate data, as these systems are designed to flag any mistakes and are often completed by the client themselves.
Now is the time to switch to accounting software if you have not already and reduce the chances of inaccurate data in the onboarding process. For example, incorrect phone numbers, ABN or ACN details, and bank account details can put a strain on the operations for accounts payable, and inaccurate information about client financials can limit management’s ability to make inventory or revenue projections. Accounting software can easily assist a business in tracking accounts receivable and accounts payable, illuminating its profitability and being prepared for tax time.
There are a number of options to choose from, such as Xero or MYOB, which can integrate seamlessly with other financial technologies, such as business reporting tools and even credit monitoring.
Review your balance sheet
Another step that your business may consider adding to its data due diligence processes is reviewing balance sheets at the end of each financial year. This can be undertaken by your internal CFO or Finance Manager. Reviewing your balance sheet can allow the business to ensure each account has supporting workpapers and documentation that is in line with the balance stated. For example, pre-payments are accurate to a calculation workpaper, or property, plant and equipment agree to the depreciation schedule. You may also use this time to confirm that accruals are accounted for and have been taken up.
By reviewing your balance sheet at year’s end, you may also be able to identify any balances that have not changed in comparison to the previous financial year. This offers the opportunity to post an adjustment, ensuring that all information is accurate and up-to-date.
Regular reconciliation checklist
When cleaning accounts, it may also be helpful to create a list of high-level, key accounts that require frequent reconciling, such as end-of-year journals, and do so on a more regular basis, such as once a month.
Reconciling your accounts allows businesses to identify any discrepancies, errors or even fraud within your books that may adversely impact your cash flow or the financial health of the business. You’ll be able to ensure consistent processes are performed on a more frequent basis, helping to better protect your bottom line.
Multi-period Profit & Loss reports
Is your business tracking its accounts for unusual monthly fluctuations? It may also be useful to take a more detailed look at the accounts’ general ledger and consider multi-period Profit & Loss reporting. Multi-period P&L reports illustrate whether a business is making a profit or loss and for which period these were recorded. This analysis is available in both MYOB and Xero, along with other accounting software, so it may be easily accessible to your accounts team.
Let’s say the business pays a $500 monthly subscription for a marketing service. Do you know if each month has a $500 expense deducted, or is there one month with no expense, and another with $1,000? A multi-period P&L report could assist you in identifying which periods were incurring additional charges for ongoing expenses, allowing you to identify unusual activity, forecast your cash flow and identify ongoing expenses accurately.
Why is accurate accounting data so important?
Cleaning up financial records and accounts is not just an issue for your CFO or Finance Manager, but one that, when managed well, has a beneficial impact for businesses from the top down. High-quality data allows for greater auditing quality, resulting in easy and effective financial reporting. This is essential for painting a healthy financial picture of a business to markets and potential investors, as well as for any future planning, revenue projections, inventory forecasting and more.
Chasing up incorrect or missing data is a cumbersome task to add to the already busy workloads of staff. By optimising your accounts processes, you’re allowing staff to prioritise crucial operational tasks, as opposed to chasing up missing information from clients, trading partners or suppliers.
It’s worth noting that directors are responsible for financial report quality, so it is in your best interest that clean and accurate information is available for all accounts and auditing services. If a business were to claim insolvency, but its financial reporting did not indicate any decline in financial position, it is likely that company directors will be investigated, alongside the auditor.
Who can assist your business in maintaining accurate data?
In terms of facilitating the above tips, the coordination of accounts data and maintaining healthy financial information can be orchestrated by a few key players in the business:
- Internal CFO/Finance Manager – If you already employ an internal CFO or Finance Manager, they should typically have experience or the expertise to perform year-end adjustments and reviews.
- External Accountant – For small businesses, this is not something you need to go at alone. It could be worth seeking account support from an external accountant at least once a month. While this can be costly, it may be worth the expense if it prevents inaccurate data.
- Outsourced services – Other service entities may specialise in year-end accounting and reporting, such as those offering CFO-like services.
Furthermore, these practices, when added to the toolbelt of your accounts’ data management, may significantly improve the workload and performance of your auditors. Even the smallest mistake or missing piece of information can impact a business’s revenue or incur unnecessary additional costs.
Engaging external accounts services on a regular basis to ensure reporting is accurate throughout the year, not just at year-end after the completion of your annual audit, can be tantamount to the success of the business. Aligning yourself with trusted professionals, such as an external accountant or outsourced CFO service, can significantly decrease your likelihood of incorrect financial information ever again.
Speak to our team about improving audit efficiency
If you’re looking to improve audit efficiency and better understand how to prepare for an audit, our team at National Audits Group can assist. We work with businesses to streamline financial processes, strengthen documentation and ensure accounts are prepared to a high standard before the audit begins.
Kate Grimson CA
Assistant Audit Manager
Disclaimer: This article provides general information on cleaning accounts, audit preparation and financial reporting practices. It does not constitute professional advice. Businesses should seek independent advice based on their specific circumstances to ensure compliance with applicable laws, standards and regulatory requirements.