Audits get a bad rap and while they can be time-consuming, costly and often point out problems or errors, but they aren’t all bad. In fact, they can be quite beneficial.

What Is a Financial Audit?

A financial audit is an examination of a company’s financial records. It is performed to ensure regulators, investors, directors or managers that the records are accurate, complete and comply with regulations. They are often associated with catching businesses doing something wrong, but they are most often used to build credibility with investors and other stakeholders, manage financial risks, maintain transparency, make informed decisions and ensure regulatory compliance. 

Internal vs External Audits

There are two main types of financial audits, internal and external. An internal audit is a self-assessment initiated by the organization. They can either use an internal audit team or hire an external firm to conduct the audit. External audits are conducted independent of the firm and are often mandated by either regulatory bodies, government agencies or stakeholders such as investors or lenders. They are conducted by an impartial third party.

Financial Audit Preparation Checklist

Whether conducting your own internal assessment or facing an external audit, preparation is key to a smooth audit.

1. Define Objectives

The first step in preparing for any audit will be to determine the objectives of the audit. What specific aspects of business operations are being assessed? What is the scope of the audit? What departments, processes or financial statements are to be examined.

2. Assemble Your Audit Team 

You will want to designate a core team to oversee the audit process. Depending on the scope, you will want representatives from finance, accounting and other relevant departments to ensure the goals and timeline of the audit are met.

3. Gather Documentation

Information is key. Compile your company’s financial documents, including balance sheets, income statements and cash flow statements as well as any supporting documentation such as transaction records, invoices, receipts, contracts and bank statements. Ensure that these records are well-organized and accessible to the auditor.

4. Review Internal Controls

Internal controls are crucial to your financial integrity. You should evaluate your organization’s internal control procedures to identify any potential weaknesses or gaps in reporting and implement improvements to strengthen them. This will enhance the accuracy and integrity of your financial data.

5. Perform a Risk Assessment

A comprehensive review of your financial data with help identify any discrepancies or potential risks in your accounting processes. Address these issues and develop strategies to mitigate such issues in the future. Be prepared to discuss them with the auditors.

6. Prepare Employees

Auditors will often conduct interviews with key personnel and perform tests on select transactions. Prepare your team so they are ready to provide accurate information and documentation when requested.

During The Financial Audit

Now that you’ve done all you can to prepare, it’s time for the actual audit. It’s important to maintain open and clear communication throughout the entire process. Address questions and share relevant information in a timely manner. You’ll want to maintain meticulous documentation of findings, recommendations, and any issues that arise. Once complete, work with your auditor to finalize the statements, ensuring all adjustments and corrections are reflected and that statements comply with relevant accounting standards and regulations.

Use the insights you gained from the audit to identify opportunities for ongoing improvement in your financial reporting processes and implement any recommended changes to enhance your internal controls, streamline workflows, and facilitate future audits. Remember, audits aren’t all bad. They can validate your financial credibility, build stakeholder trust and help you improve your financial practices.

Get Peace of Mind with Arsenault CPA Firm

Preparing for a financial audit can be stressful, but with well maintained, accurate bookkeeping, it can be a lot easier. Our New Mexico-based accounting firm’s outsourced bookkeeping services take the stress out of bookkeeping by delivering accurate and detailed financials every month. Contact us online or call 505-722-3399 for a free consultation.