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Eight steps to financial audit readiness for scaleups


The success of your year-end financial audit depends on the steps scaleups take many months before. Whatever actions your finance team takes throughout the year, always ask this critical question: “Is my business audit ready?”

Audit readiness does more than make your auditors happy. It simplifies the entire audit process, speeds up turnaround time, and decreases the cost of your audit. It even helps beyond the audit itself. Internally, perpetual audit readiness helps you track your financial results against projects in a manner consistent with the audited financial statements. This enables key management to gain visibility into the operating results of the business in a more accurate and timely manner.

Today's labour shortages and high turnover rates make audit readiness increasingly important: it can keep your audits running smoothly even if someone on the team leaves. Externally, it keeps you ready for lenders and investors, who review your books before providing capital, and prospective buyers if you look to sell the business.

To make sure your financial records are audit ready, follow these eight steps. The effort you make throughout the year will help ensure the audit goes smoothly, for both you and your auditors, when year-end arrives.

Eight steps for scaleups to become audit ready

An auditor's job is to examine the accounting—not execute it. By the time the auditor sits down with your books to sign off on their reliability, the records and operations should be as clean as possible.

Auditors are intervening less and less in the accounting function. Lenders, the public, regulators, and auditors themselves are pushing for increased independence, especially for public companies. The onus shifts to organizations, which must prepare their financial records before the audit.

The talent shortage facing many organizations can pose a particular risk for the finance function. Burnout and stress can lead to cutting corners with internal controls which could then impact the reliability of financial statements.

Mistakes happen in financial reporting but minimizing them gets your books in the best possible shape for an audit. Help your team increase the quality of their work by giving them the support they need. Assign them only the responsibilities that match their knowledge and experience level. And for teams that are over-extended, consider hiring a knowledgeable resource who can alleviate some of the workload—either internal or external.

A big part of staying audit ready is not waiting until the last minute. Every month, reconcile all your financial numbers and build them into the balance sheet. If you follow the process to the end of the year, your basic entries and ledgers will stay current. You won't need to scramble to clean up your financial records, and your auditor will thank you.

You may have experienced this scenario: your auditor begins the audit and then asks your finance team to explain an entry. Members of the team can't provide the context, and now the team needs to search for supporting documentation. To prevent this, create the audit trail when booking the entry in the first place, record it clearly for the auditor to understand, and indicate any corrections so the auditor can follow them.

There are tools that can help. Most accounting software, like Xero, QuickBooks, Microsoft Dynamics 365 Business Central, and Netsuite, allow you to simply attach supporting documentation—making this process easier.

Additionally, the new CAS315R standards, in effect for all audits for entities with fiscal year ends after Dec. 15, 2022, require a deep dive of the company's internal controls including a what could go wrong assessment. Leaders can be proactive and assist the audit by periodically reviewing and documenting their financial operations, internal controls, and processes.

Not all accounting issues are created equal. While internal teams may be able to handle day-to-day entries, they often struggle to record complex transactions. Examples include:

It's worth tackling these questions by reaching out to an external accounting advisor during the year. Your team could communicate how they think the event will impact the financial statements. The accounting advisor can assist management on the technical aspects and provide recommendations to adjust the team's approach.

Harness the full power of accounting tools. As your organization grows, the internal control weaknesses inherent in spreadsheets will push you to bring on a more sophisticated accounting technology. Whether that's an off-the-shelf accounting software or advanced customized solution, make sure to take advantage of its full functionality. These tools will help you make business decisions that go beyond financial reporting. Applications include inventory management, accounts payable, and cashflow forecasting. Keep them in mind as your finance function evolves through its digital transformation.

It's important to note that if a digital transformation strategy is being adopted, appropriate documentation regarding system implementation, including approvals, may be necessary. It is recommended that an external consultant be involved to ensure the integrity of the data transfers.

Sustainability and environmental, social, and governance (ESG) reporting is top-of-mind for financial leaders right now. As climate risks increase, and governments set new policies and regulations, companies will be expected to provide more—and better—financial reporting, including adding ESG disclosures. Globally accepted reporting standards are being developed, and will be required in the near future, adding more year-end reporting considerations.

Each year is a new one, with new annual reporting requirements. That said, build the lessons you learn from one year into the financial operations of the next. By repurposing knowledge and best practices, you can empower your team and create a culture of learning and continuous improvement.

Due to the high attrition rates we're seeing right now, it may be more difficult for your team to maintain continuity. You can document auditor findings, create an internal SharePoint database of all support provided during the year, and have feedback discussions—this will provide anyone coming into future audits with details about what occurred before they arrived. And, most importantly, your financial records will become more audit ready from year to year.

How BDO can help

BDO's team of Accounting Advisory professionals helps organizations get their financial records audit ready. The team's experience runs the gamut from day-to-day accounting to the most complex transactions. BDO's Accounting Advisory professionals understand auditors' needs and expectations when auditing the books. Yet they also know the challenges of today's lean finance teams and support team members by sharing best practices.

The Accounting Advisory team works as a cross-functional group. Where applicable, they bring on professionals specializing in areas such as tax and technology solutions to benefit your organization. This approach emphasizes flexibility: tailoring the right mix of services to the size of the business.

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