ABC of Accounting – Preparing for an Audit


 

Preparing for an audit for the first time can be a daunting prospect for the best of us, having someone check your work making sure everything is in the correct place and it all balances can create stress even if you know it’s all ok, just the thought can make you question yourself.

Private Limited and Public Limited companies registered under the Companies Act are required to have their accounts audited every year. If your business doesn’t fall into these categories it still good practice to have an in-house checking system, after all, if it’s your business it’s your livelihood.

So, it’s a good idea to get ahead of the game and take some time to check certain key areas prior to the audit happening. A lot of businesses will check their accounts on a monthly basis as a matter of course. This way any anomalies are highlighted early on and can be dealt with within the same period.

Preparing for the audit

A checklist is always a good idea and a great starting point. You can ask your auditors for this as it may be business specific, this will give you time to prepare any reconciliations and have answers ready for when the questions arise.

Company Structure

Organisational charts are common place within a business and will give the auditors the flow of command. Articles of Incorporation, minutes of board meetings and any changes in directorship in or out will need to be provided. Along with any company procedure manuals, policies and HR documentation.

Company Finance

If any equipment or vehicles have been purchased through a lease or HP agreement these documents will be required and, any investment, equity etc will need to be substantiated. Any long term debt will also require documentation.

Financial Documentation

Below is a list of common areas that any auditor will check and call for. This list is not exhaustive and, depending on your business could be more complexed but it’s a good starting point. It’s also a good idea to create an audit file to house all the expected information required and this can be handed over on their arrival. These are areas that you can check prior to your audit making sure you are prepared and that everything goes smoothly….

  • Cash and bank balances will need to reconciled and bank statements provided for all accounts.
  • Stock list at our yearend should be provided which has been checked with the physical stock and that it agrees with your accounts.
  • Fixed Assets list detailing any additions and disposals throughout the year.
  • Accounts payable will show what you owe to your suppliers at the year end and the invoices will need to be at hand for checking.
  • Accounts receivable will show what your customers owe you at the year end and all invoices will need to be available for checking.
  • Trial Balance as at your year end is the starting point for the financials so you will need to make sure all entries have been posted.
  • Nominal/general ledger activity for the complete year is the detail behind the trial balance and a copy is normally run off for the auditors to enable them to check and randomly select items they which to investigate in more detail.

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