It is advantageous to prepare in advance for any intended event to achieve a successful outcome or avoid embarrassments. Being prepared means envisaging the end from the beginning in a normal scheme of things. In the same light, audit readiness is a state of being fully prepared for an actual audit engagement, ensuring that records are intact and financials are accurate, complete, and readily accessible. Audit readiness serves as a pre-test to assess how well your organization has implemented its policies, systems, financial processes, controls, and documentation.
For external auditors, audit readiness is key to obtaining verifiable audit evidence based on documentations to assess financial health, identify potential risks or irregularities, and provide an unbiased opinion on an organization’s financial statements. Without proper audit readiness, auditors may find it challenging to obtain comprehensive audit evidence, leading to avoidable delays, additional costs, and potential adverse audit findings.
Steps to Achieve Audit Readiness
To ensure audit readiness, organizations must start the process early enough, organizing and putting necessary resources together. Business leaders should adopt a systematic approach and implement best practices, involving the following:
- Ensuring System of Policies and Procedures
This requires is a company or any organization worth its salt to have in place a clearly defined and documented policies and procedures. A policy document must provide a framework for consistent and compliant financial practices and serve as the reference point for audit readiness at all times. Policies and procedures must provide a detailed guideline for employees to follow due process with regarding to recording transactions. A well-defined policy should be able to prevent fraudulent activities, reduce the risk of non-compliance or adverse audit findings and ensure consistency in financial reporting. It is, therefore, appropriate in that regard to regularly review and update policies and procedures and ensure they align with changing business needs and regulatory standards.
- Maintaining Accurate and Complete Records
To ensure audit readiness, it is also important for an organization to keep detailed records of financial transactions. Audit team will test financial statement assertions and detect potential misstatements, discrepancies or irregularities by tracing a record of transactions. To do that, the audit team will ask for various invoices, receipts, bank statements and other documentations constituting audit evidence. If they can’t obtain enough audit evidence, it will be difficult to provide reasonable assurance that a company’s financial statements are materially correct. An online document management system is in vogue and can make it easy to store and retrieve files. Indeed, a well-organized, up-to-date and easily accessible records not only demonstrate audit readiness but also confirm an organization’s commitment to financial integrity and transparency.
- Conducting Regular Internal Audits & Controls
Internal audits play a crucial role in achieving audit readiness. Regular internal audit exercises help to identify and address any potential issues of non-compliance before external audit takes place. In the same vein, it can help to validate the effectiveness of policies and procedures, identify areas for improvement and ensure that employees are adhering to protocols. Organizations can significantly reduce the risk of audit findings through internal audits. Alongside internal audit is the need to implement strong internal controls to clearly spelt out segregation of duties, approval (authorization) processes and account reconciliation of financial transactions. Account reconciliation, for instance, helps to identify and address any discrepancies or irregularities in financial transactions and highlight incidents of fraud as well.
Account reconciliations, therefore, provide the basis for ensuring financial statements are accurate and complete and prepared in line with relevant regulations and standards. There is also the need to conduct regular self-assessments of the organization’s financial processes, controls and documentation to identify potential risks or breaches relating to privacy, security and identity systems. Considering the technical issues inherent in audit, business leaders must engage the services of professionals to uphold ethical standards and best practices.
- Training & Fostering a Culture of Compliance
To create a culture of compliance, business leaders must institute regular training programs especially on financial policies, procedures, internal controls, and the use of accounting tools and software. Business leaders must also promote open communication and encourage ethical behaviour by demonstrating same in their conducts. Training activities should aim at encouraging employees to imbibe the knowledge and skills required to keep accurate financial records and appreciate the importance of audit readiness. By ensuring that employees are well-informed and educated, organizations can minimize the likelihood of non-compliance and misconduct. Regular refresher training sessions can also be beneficial to keep employees updated on any changes in policy and business environment.
- Leveraging Modern Software Applications
In today’s technology world, business leaders must stay ahead of the curve to remain competitive. In that regard, they must procure robust accounting and audit software applications which can make their operations efficient and eliminate processes prone to errors and inconsistencies. Thus, to enhance audit readiness business leaders need to automate their processes and ensure necessary documentations are captured and stored securely. By leveraging technology, organizations can also implement controls such as spending limits and policy enforcement to reduce the risk of non-compliance.
Advantages of Audit Readiness
The value of audit readiness cannot be overstated in ensuring compliance with regulations and enhancing organizational operational efficiency and accountability in the eyes of stakeholders.
- Preparing for A Statutory Audit
In this regard, audit readiness serves as the basis for ensuring reports are compliant with the latest regulations. It helps to avoid surprises during the actual statutory audit and reduce the number of samples auditors will test. Being compliance means risks which could result in fines, penalties or protracted legal actions are minimized or eliminated completely.
- Ensuring Efficient Auditing
Audit readiness helps to save time and effort, as auditors don’t have to sift through a large amount of datasets to find what they need. This also helps to minimize the risk of errors and omissions during the auditing process.
- Better Decision-making
Audit readiness is a necessary step for strategic decisions because stakeholders including investors, customers and lenders rely on accurate and reliable financial reports to make informed decisions. What audit readiness invariably does is that it enables business leaders to present accurate financial information at any point in the financial year for ad-hoc requests from management or third-parties, such as banks, tax authorities and suppliers. Such reports, for instance, decrease risks in case of mergers and acquisitions or divestiture process, as the value of a company and its assets is supported by reliable data.
Key Takeaways
Business leaders need to implement proactive measures for audit readiness to achieve successful final outcomes and avoid surprises.
They must:
- Establish a comprehensive policy that covered all aspects of their operations including documentation requirements and approval processes.
- Adopt robust software applications and automate the entire business processes to ensure consistency and accuracy. Leveraging technology saves times, enables efficient auditing, accurate financial reporting, and serves as the launching pad for data-driven decision making.
- Conduct regular internal audits to identify any potential issues and address them promptly.
- Train employees regularly on policies and procedures and monitor to ensure compliance.
Conclusion
In sum, achieving audit readiness calls for a proactive and comprehensive measures. In that light, it is worth reiterating that having in place a clear policies and procedures, implementing robust tracking and reporting systems cannot be overemphasized. Business leaders must ensure compliance with relevant regulations, conduct regular internal audits, train and educate employees on best practices while collaborating with finance and accounting teams for seamless audit preparation. Audit readiness is an ongoing commitment to maintaining financial integrity and accountability. Business leaders should continue to streamline their operations to achieve successful audit outcomes to win the trust and confidence of their stakeholders.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
Our Office is located at Lagos Avenue, East Legon, Accra.
Contact: +233 302 528 977
+233 244 566 092
Website: www.jsmorlu.com.gh
