Having an audit enables companies with reporting obligations to comply with the laws and regulations in force in Canada. In addition, an audit reinforces a company’s financial credibility with investors and creditors, thereby facilitating access to financing.
We understand that business leaders often view the audit process with some reluctance, due to the time and resources it requires. However, proper preparation can considerably simplify the conduct of an accounting audit, reducing its duration and, consequently, the associated fees.
Understanding the definition of a financial statement audit
An audit involves performing procedures to obtain reasonable assurance about whether the financial statements and other financial information are free of material misstatement. Audits are carried out by independent professionals.
What are the objectives of an accounting and financial audit?
Comply with current regulations
In Canada, certain companies, such as publicly traded corporations and subsidized not-for-profit organizations, have a legal obligation to provide audited financial statements.
Enhancing the credibility of financial information
Certification of financial statements helps to strengthen the confidence of stakeholders such as investors, creditors and regulators in the reliability of financial information provided by the company.
Verify compliance with accounting standards
The audit process verifies that the financial statements prepared by management comply with the applicable financial reporting framework. This compliance is essential, as it guarantees clear information and facilitates comparisons between companies.
Making decisions easier: why have an audit?
The certification of financial statements provides management and stakeholders with accurate and reliable financial information, thus facilitating their decision-making.
The expertise of the auditor and the accounting firm
A trained and qualified professional, the Chartered Professional Accountant (CPA) auditor is responsible for carrying out audit assignments. The auditor’s independence from the company being audited is essential to guarantee the credibility of the process. CPAs must comply with the profession’s Code of Ethics.
The auditor proceeds methodically, accessing all relevant data and dissecting the company’s accounts in detail. In addition to ensuring the accuracy of the accounts, the auditor also provides insights for future action in areas such as finance or management, for example.
The auditor’s role does not end with the detection of deficiencies. In fact, if any significant deficiencies are discovered, the auditor must report them to the head of governance.
How an accounting audit works: how an external audit works
An audit is generally divided into several key stages. First, the auditor must accept the engagement. Acceptance of the assignment must be made by means of a mandate letter setting out the responsibilities of the various parties, including governance and the auditor. Next, the auditor must familiarize himself with the company and its environment, in order to draw up a precise and detailed audit plan, which will serve as a guide throughout the audit. In particular, this will specify the scope and timetable of the work.
The auditor then acquires an understanding of the company’s internal control environment to identify areas of risk and determine the nature and scope of the audit procedures to be applied.
After this phase, the auditor carries out his work, either by performing analytical and corroborative procedures. During this phase, for example, the auditor may resort to direct confirmation, a procedure which involves asking third parties (customers, suppliers, banks) to confirm the balances of certain entity accounts.
Following completion of these procedures, the auditor issues an audit report, in which he expresses an opinion as to whether the financial statements present fairly, in all material respects, the financial position of the company.
Now, how do you prepare for an accounting audit?
We’ve finally arrived.
Establishing an action plan is essential for effective audit preparation. This plan should include objectives, deadlines and responsibilities.
To prepare your company effectively for an audit, here are a few key points:
1. Understanding audit requirements
Find out about specific audit criteria and auditor expectations. Depending on the needs of the users of the financial information, an audit report may cover individual financial statements, specific items, accounts or line items within a financial statement, or the financial statements as a whole. The length of the process and the number of supporting documents required will vary according to the scope of the report.
2. Balance accounts monthly
Reconciling your figures every month will keep your books and basic entries up to date throughout the year. That way, your accounts will already be up to date when it’s time for the audit at the end of your financial year. This saves you the stress of having to organize all your files at the last minute.
3. Organize the necessary documents
Gather all necessary financial documents such as financial statements, bank statements, invoices, receipts, contracts and accounting journals in an appropriate directory. Make sure they are complete and clearly identified. Proper organization of your documents will facilitate the auditor’s work, which can reduce the length of the process.
4. Ensure that procedures are up to date and comply with standards
Make sure your internal policies and procedures are up to date. Up-to-date documentation of your financial processes and internal controls is crucial, as it will have an impact on the auditor’s understanding of your business environment and the implementation and effectiveness of your internal controls.
In addition, standard-compliant procedures will reduce the number of year-end adjusting entries to be made during the audit process, which can help reduce audit time. In addition, effective internal controls reinforce the auditor’s confidence in the accuracy and reliability of your financial statements, which can limit the extent of audit testing required, making the audit more efficient.
5. Review staff training
A well-staffed finance function can enhance the reliability of your financial statements by limiting the number of errors made in their presentation.
6. Use appropriate accounting software
The use of accounting software is important, as it brings greater precision and efficiency to the processing of financial information. Accounting software enables rigorous monitoring of financial transactions and compliance with accounting standards. They also offer the possibility of automating accounting processes, reducing the risk of human error in operations. What’s more, these tools can help you document your entries, facilitating the transmission of the necessary supporting documents to your auditor.
7. Communicate effectively with listeners
Setting up a direct line of communication with auditors to respond promptly to their questions and requests for information helps avoid unnecessary delays. Establish an efficient and secure system for transmitting and exchanging documents. If we’re lucky enough to work together, we’ll take care of the security associated with document transmission.
8. Prepare your key team members
It is crucial that members of your accounting and finance team are available during the audit process to answer questions and requests from the auditors. Inform them in advance that they may be called upon and that it is important that they cooperate. Lack of cooperation can not only complicate the process, but also, in the most serious cases, adversely affect the conclusion of the auditor’s report.
9. Consult audit findings from previous years
Auditors are trained to identify weaknesses in your processes and make recommendations. Don’t overlook these recommendations, as they may target significant flaws in your internal controls that could create errors and enable fraud. Make sure you are aware of them and implement them.
In conclusion, proper preparation can considerably facilitate the auditors’ work and save you time, money and effort, while enabling you to get the most out of the audit. If you have any further questions on this subject, please do not hesitate to contact our certification team.
