Preparing For Your First Audit

Chartered Accountant Tom Johnson explains why you shouldn't worry unduly if your business has grown to the point, it requires its first audit. The process can, in fact, be very helpful.

If you're a business owner facing your first audit, you may have exceeded two or more of the following criteria for two consecutive years; turnover of £10.2 million, total assets of £5.1 million or 50 employees. The thought of going through the process may seem particularly daunting and stressful for your business. However, it doesn't need to be if your audit is done right. In fact, it can be greatly beneficial to your business.

Some companies even choose to embark on an audit before they reach the stage where it's obligatory. You may wish to do this to give you peace of mind that your accounts which you are presenting to your stakeholders are accurate.

An audit is an examination of the financial statements of the company. It must be carried out by businesses annually and provides information to investors, banks and other stakeholders about a company's financial position. The audit will have accurate financial reports and adhere to legal and regulatory standards.

For a 'typical' company without any financial problems or prior issues, the planning of the audit will take a few weeks, depending on how familiar you are with the process. It is a good idea to dedicate enough time to plan the audit and gather the sufficient supporting documentation to make it easier for both you and your auditor. However, outsourcing to the right auditor is vital.

What To Expect – The Auditing Process

Audits are necessary to verify the accuracy of your financial records and ensure that they offer a fair representation of the state of the business. Planning and preparation are key, especially for your first audit. Having your financial accounts audited with a clean bill of health can boost confidence and makes you much more attractive to potential investors.

There are three different types of audits:

EXTERNAL AUDITS

Performed by an external third party. These kinds of audits are said to be more impartial as the third party must be suitably qualified and independent and must document, and safeguard if necessary, against any conflicts of interest.

INTERNAL AUDITS

Performed by the employees of the company being audited. These audits are rarely distributed externally and are mainly used for internal purposes. Many large companies have internal audit departments to assist with their external audits.

GOVERNMENTAL AUDITS

Performed by various government entities or agencies to ensure that the prepared financial records do not misrepresent the company's finances.

There are three main phases to the auditing process:

1. Planning

The planning phase involves the auditor gathering relevant background information to gain an understanding of the audited company's size and responsibilities, as well as the procedures it has in place.

This stage also typically involves an opening meeting with management where policies and procedures are discussed, as well as analyse financial activity and solicit further information from central administrative personnel. A detailed list of items needed for review and an engagement letter that outlines the audit scope, project timeline and final deliverables will also be provided.

2. Fieldwork

This is the evaluation phase of the audit. It includes assessing the adequacy of internal controls and compliance; the testing of transactions, records and resources; and the performing of other procedures necessary to accomplish the objectives of the audit. It may also be necessary for the team to conduct interviews with staff to develop a deeper understanding of the processes and areas of potential improvement.

This phase will demand the most attention from your business, spanning anything from a couple of weeks to several months, depending on the size of the company and the external audit firm carrying out the engagement.

3. Reporting

The report will detail the audit's scope and objectives, results, recommendations for improvement and the audit client's responses and corrective action plans. You will then need to provide action plans to remedy the issues identified. After this, you will receive a final draft report.

If necessary, an exit meeting will be held to provide businesses with the opportunity to resolve any questions or concerns they may have with the audit results before they are officially released.

Common Deficiencies in A First-Time Audit

A first-time audit often reveals two types of deficiencies:

RECORD RETENTION: Fast-growing companies often lack all the records needed to fully support all the transactions that underlie their financial statements.

SEGREGATION OF RESPONSIBILITIES: for a company who has just breached the threshold, it is not uncommon for one person to handle multiple accounting responsibilities, giving rise to a control deficiency from a financial reporting perspective.

How To Choose an Auditor

To guarantee that the audit process goes smoothly, here are a few factors you should consider when choosing an auditor:

• The reputation of the auditor
• Experience and expertise of the auditor
• The technology the auditor is using to conduct the audit

Why Choose Page Kirk?

If you want an auditor who will meet deadlines and will provide a thorough, detailed analysis of your business' financial information, Page Kirk is the firm for you.

Here are just a few reasons why you should choose us to perform your next audit:

• Our services maximise your business performance
• We establish what you require and offer tailored packages when you need them for your specific needs
• Our auditing services ensures there is minimal interruption to your business
• We have a technically experienced and commercially focused team
• You will be assigned a partner who will be responsible for keeping our services in line with your expectations
• We are dedicated to the on-time delivery of services along with your wider business aspirations

To find out more about how Page Kirk can help you with your first audit, email enquiries@pagekirk.co.uk or call 0115 955 5500