5 Quick Ways To Prepare Your Business For Audit 2021
An audit looks at the financial reports of an organisation to identify any discrepancies within the financial statements. For a financial audit, you will need your balance sheet and an income statement. The goal of an audit is to form an independent opinion on the financial statements of the audited entity. The opinion includes whether the financial statements show a true and fair view, and have been properly prepared in accordance with accounting standards. If your company has an annual report, this is where you will include the audit material for your stakeholders to help them make financial decisions, if warranted.
Preparing for an audit can be a scary process - especially if you have a small team. You might be worried about keeping costs down and managing your time.
Here are five quick tips that you can use to prepare your SME for audit.
1. Organise and manage all your financial documents
When the end of your financial year comes around, you will be grateful for having managed all your financial documents in one place. Any receipts, invoices, purchase orders, quotations or other documents related to your business transactions should be kept - both the physical and digital copies.
Whenever possible, you should tag receipts and invoices to your bills. This ensures that all transactions have the relevant paper trails attached for easy reference.
Any dealings you have with external vendors should also have clear audit/paper trails. Email threads are important to show communications between the two parties as auditors may ask for email correspondence between your business and your external vendors. This is so they can verify the financial statements and documents with the relevant email correspondence.
A few tips you can use to organise your financial documents:
- Set up a Google Drive folder that is shared with your company employees to store backups and records of all transactions made
- Use an invoicing software like Pantas to speed up your bookkeeping process and keep track of all your invoices as well as their relevant attachments for audit purposes
Adding this process to your daily workflow will help you in organising all the documents that your auditor may or may not need access to, ahead of time.
2. Keep up with good practices
It’s important to keep the management of your business in-line with good practices regardless of the size of your business. It is always better to start implementing these habits and good practices early on.
There are many types of practices you can follow to ensure your audit process is smooth sailing when the time comes:
- Ensure a strict month-end close: This is a basic practice for larger firms, but many smaller firms do not place enough importance on this. Having a regular schedule for closing your books will not only help you be on top of your month-to-month finances, but also allows you to identify any discrepancies or problems early on.
- Maintain a check-list: Ensuring that you go through every necessary step before closing your books at the end of each month will prevent additional layers of work at the end of a financial year.
- Balance sheet reconciliations: It’s always best to keep your balance sheets reconciled on a monthly basis to keep your financials healthy. However, if you are a smaller firm, it is common to choose to do your reconciliations on a quarterly or even a yearly basis.
3. Follow relevant accounting standards
A company has to meet certain criteria to be audited. Check if your company is exempted from auditing via the Companies Commission of Malaysia page.
If you are exempted from audit, organise your accounts based on the basic accounting principles and rules to properly represent the financial position of your business.
Should your company fit the criteria for an audit, make sure you fulfil the same basic accounting rules and be aware of any relevant accounting standards to your firm. These standards are important for you to accurately evaluate your company’s finances - which will be important for your investors too. For Malaysian firms, we recommend referring to Malaysian Accounting Standards Board (MASB).
Changes to accounting standards can include rules on revenue recognition, accounting for leases and non-profit accounting. If your firm is not updated with the latest rules, the required changes may cause your audit process to be longer than expected.
You can refer to Malaysia Financial Reporting Standards (MFRSs) for further audit related requirements.
4. Prepare internal controls
Ensure that the process of approving all expenses follow an outlined segregation of duties; where the preparer, reviewer and approver are separate parties. This is to avoid one party having too much control in the process which presents a high risk of fraudulent activities. A clear description of who your approving parties are makes it clear to your team on their roles and responsibilities
Documents should also have limited authority - not all parties should have access to all confidential documents. Laying out an authority matrix in terms of who has access to certain areas (payroll information, employee personal information, etc) maintains the necessary levels of privacy required in protecting your company's data.
5. Keep auditors in the loop
Having your auditors in the loop throughout your audit streamlines the audit process.
Typically, longer audit processes occur due to multiple back-and-forths between the auditors and your company. Maintaining a healthy and open relationship with your audit team allows any questions and roadblocks that may arise to be addressed quickly. You can do so by conducting frequent meetings with your audit team.
At the beginning of an audit, the audit team should provide you with an Information Request List (IRL), that lists out all the required documents for the audit. Thus, the habit of regularly keeping all your documents organised and in one place would help you and your team save time and costs.
Doing this will allow you to focus on your day-to-day business activities and lessen the disruption of audit.
How you can use Pantas to prepare for audit
Why Pantas? Pantas is a smart invoicing tool that uses machine learning to streamline your business processes and helps you stay audit ready. Unlike most of the softwares, Pantas is completely free to use.
Here’s what you can do with Pantas:
- Attach supporting documents to your invoices and bills - upload documents such as your purchase orders, quotations, receipts and more when you send invoices to speed up the reconciliation process.
- Import & Export invoices and bills for a complete bookkeeping process - having all receivables and payables in one place helps you stay organised. You can choose to import and export in XLSX, XLS or CSV formats
- Monitor your invoices and bills using the audit trail feature - follow the audit trail and keep yourself informed on the invoice status. You can view it anytime and anywhere on any device.
- Conveniently search for the invoices your auditor needs - Use our powerful search engine to search for specific invoices with keywords, be it vendor name, amount or item description.