How to prepare for your first audit

Preparing your company for its first audit can be a daunting task.  This blog aims to give readers tips on how to make your first audit as smooth as possible.

Why is your company having an audit?

There are two types of audit: 

• Statutory – Where the company has exceeded thresholds set within legislation and must have an audit, and

• Voluntary – There are several reasons why a company chooses to have an audit where statutory thresholds are not exceeded, such as

• banks can require audits as part of loan agreements.
• a grant body may require an audit as a condition of receiving grants.
• transparency to the public, particularly if the company is heavily active in the community.
• it is part of the company’s articles of association to have an audit.
• minority shareholders requiring an audit.
• and many other reasons.

What is the purpose of an audit?

Whether your company has a statutory or voluntary audit, the main purpose of the audit is for an independent auditor to give an opinion on the following:

• That the financial statements give a true and fair view of the state of the company’s affairs at the reporting date.

• That the financial statements have been prepared in accordance with the relevant accounting standards.

• That the financial statements have been prepared in accordance with the Companies Act 2006.

The audit process can also add value in the form of recommendations that are suggested by the auditors to improve processes and controls.   

Who carries out the audit?

An audit must be carried out by a registered auditor which means they have to be registered with one of four organisations recognised as a supervisory body:

• Association of Chartered Certified Accountants (ACCA);

• Institute of Chartered Accountants in England and Wales (ICAEW);

• Institute of Chartered Accountants in Scotland (ICAS);

• Institute of Chartered Accountants in Ireland (ICAI).

See Helpful Links to search the Audit Register.

How can you prepare for the auditors?

It is vital to give your finance team as much time as possible to prepare for the audit, including ensuring they understand why the audit is taking place.  Here are some tips on how to help your finance team:

• Invite your finance manager to meet the auditors.  This gives both sides the opportunity to discuss the key areas to be audited, the type of information that will be needed and the people the auditors will need to talk to when they visit.

• Agree who the main contacts will be on both sides to aid easy communication.

• Agree a timetable with the auditors starting from the point the financial statements will be prepared, planning meetings, site visits to perform the audit work, closing meeting and final sign off of the financial statements. 

• Ask the auditors to provide a list of standard information that will be needed for the audit and give your team enough time to prepare.

• When the audit team is onsite, ensure your finance team are available to help answer questions.

What should I know about the first audit?

• The auditors will need to gain an understanding of what your business does and why, gain an understanding of the markets in which you operate, who your competitors are as well as an understanding of how you do this, for example, how do you generate income and record this, what is your process to purchase goods and services, how do you employ people and ensure your financial records are maintained.

All the above will take time to document as well as the assistance of your employees to explain to the auditors what you do and how.

• The auditors will need to perform work on the prior year balances to gain assurance they are free from material errors.  Be prepared to delve into older records.

• If you are not already preparing budgets and forecasts, be prepared to start.  You will need to provide budgets and forecasts for a period of at least 12 months from the date the financial statements are expected to be signed.

• The significant amount of information gathering makes for a smoother audit in the following year.

• Your finance team and others involved in the first audit will be well prepared for future audits.

• Most importantly, speak to your auditors if you have any questions.  We are friendly people and want to help because if you are well prepared it makes for a better audit.

   

Helpful links:

Statutory audit thresholds: Audit exemption for private limited companies – GOV.UK (www.gov.uk)

Audit register: Audit registers | ICAEW

Related blogs:

Transform Your Audit Process: Benefits of Using Caseware Audit | Plus Accounting

How to prepare a strategic report | Plus Accounting

Want to learn more?

Get in touch with our in house expert Chris Morey to see how we can help.