7 Audit Preparation Tips for Your Next Financial Audit

financial audit preparation tips

There are a few words or phrases in business that every company cringes at. Words such as "audit" have the potential to send all departments into a panic.

It is a tedious process that takes as much effort as it does time. People come in and critique every move your company has made over the last week, month, or year.

However, the auditing process doesn't have to be as stressful as most companies make it seem. There are things you can do ahead of time for audit preparation, thus creating a seamless process.

Here are some steps you can take to give yourself confidence going into the audit.

1. Draw a Line Between Business Expenses and Personal Expenses

Many business owners make the mistake of improper bookkeeping among their business expenses and personal expenses.

Not separating the two can land you in a world of hurt with both the audit process and tax season. That is why having an accounting division is so crucial to your business. Learn more about that here to give yourself a financial advantage.

By paying for business expenses on your personal account, or vice versa, you are complicating the way in which your purchases are tracked down the line.

All of this can be avoided by starting out on day one with a business bank account. From this day forward, any and all business expenses will be paid for out of the business account. 

That way, when it comes time for those expenses to be tracked during the audit, all of your expenses are listed out in the business account's statement.

2. Create an Internal Auditing Task Force

What is one of the best ways to prepare your company for an annual audit? Create accountability for all departments in the form of an internal auditing task force.

The task force itself can include as many or as few of the members as you see fit.

Take the time to focus on the areas that need auditing and decide how often you need to perform an internal audit to maintain consistent reports.

Most importantly, alert all departments to the dates of both your internal audits and the actual audit itself. This way they can be fully prepared and prioritize the organization of their department accordingly.

3. Enforce Accounting Standards

This is one of the biggest steps that most companies miss out on in preparation for the financial audit. How can your departments prepare for something they don't know the finer details of?

Your accounting standards should be on-par with the reporting and organization the actual financial auditor will demand. 

If you enforce the auditor's accounting standards from the very start, then it will be as simple as handing them over reports that meet their exact requirements. If not, then your departments could be scrambling to compile the proper reports.

4. Consistent Communication

If you shrug the inevitable annual financial audit off to the side throughout the year, then your workers will do the exact same thing. 

However, if you drive home the point of being prepared and concise with things such as a consistent inventory count, they'll see the emphasis you're placing on the audit and follow suit.

Don't just communicate the importance of the audit, be sure to also communicate how the audit is going to be laid out.

For instance, what time constraints should your workers expect with the financial audit? What date(s) will the audit be taking place on? Are there any requests the auditor has laid out prior to the actual audit date?

It's your job to be the messenger. If your departments aren't prepared for something they weren't made aware of prior to the audit, then you only have yourself to blame.

5. Use Your Hindsight

Have you already gone through the financial audit process a time or two in your company's history? If so, fantastic! Use that to your advantage.

What recommendations did the auditor(s) give your company after the past audit? 

Which portions of the audit were you most confident with? Which portions were you most worried about? Line those up and be sure to prioritize them heading into your next audit.

Did you pass along the necessary audit information to your departments? Even if your answer is "yes", think of ways you could communicate that even better this time around.

6. Don't Be Afraid to Ask Questions

Contrary to popular belief, Auditors don't just walk into your company's building, sit down in a quiet room and demand that no one talk to them.

They love answering questions. It's what they're there for.

Don't be shy. Ask them any questions you have on the process, what they've found during their audit, anything you can do to organize your company better, etc.

You asking questions means that you're trying your hardest to do things the right way. That's very reassuring in the auditor's eyes.

7. Be Transparent

The worst thing that you can do is try to cover up errors in your company that you knew was there. 

Not only is that unconstructive to the auditing process, but it will also result in high fees when the auditor finds them.

However, if you make the auditor aware of your errors prior to them coming across it and list out your reasoning behind it, the auditor may excuse the fee since you were honest and upfront about it.

Audit Preparation: Organization and Prioritization Are Key

The two main things to remember with audit preparation is to stay as organized as possible.

Keep it at the top of your company's mind throughout the year and you'll have a smooth audit process all the way around!

Be sure to read our other articles that pertain to both this topic and other topics that are just like it!

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