An annual audit is not merely a statutory obligation and an additional burden. It is also an opportunity to gain a clear picture of your company’s financial position and confidence that its processes are working as intended.
A well-planned schedule, accurate accounting, sound processes, well-organised documentation and effective communication with the auditor can turn an audit from a routine review into valuable collaboration. This reduces risks, supports better management decisions and helps identify potential issues before they become problems.
The keys to a successful audit are:
- good time management and meeting deadlines
- accurate and transparent accounting
- effective internal processes and controls
- open communication between the auditor and the company
So, what can you do to ensure that the audit process is efficient and runs smoothly?
Agree on a realistic schedule
A realistic schedule – and sticking to it – is the foundation of successful collaboration.
- Agree on the audit schedule and practical arrangements, including communication methods and channels, well in advance.
- Coordinate the audit with other deadlines, such as consolidation, management board meetings, owners’ expectations and loan covenant requirements. Make sure all parties understand that the agreed deadlines apply to everyone.
- Allow sufficient time to make any necessary adjustments to the financial statements.
The earlier the auditor is involved – for example, when dealing with complex transactions or implementing new standards – the lower the risk of time-consuming surprises at the final stage of the audit.
Keep accounting records and inventories in order
An audit does not begin when the financial statements are prepared. The groundwork is laid through day-to-day accounting.
It is important to ensure that:
- balance sheet and income statement balances have been reconciled and verified
- the accounting records provide a clear breakdown of the transactions making up each balance
- balances, and particularly significant one-off transactions, are supported by appropriate source documents and evidence
The more clearly these steps are documented, the easier it is for the company to maintain an overview and for the auditor to assess whether the financial information is accurate.
Review accounting policies and procedures
The annual audit is also a good opportunity to review:
- internal accounting procedures
- accounting policies, such as revenue recognition, inventory valuation, provisions and the recognition of financial instruments
- whether actual practices are consistent with documented policies
If the company has undergone changes – such as entering new areas of business, implementing new IT systems or seeing ESG matters become more significant – the relevant accounting and reporting principles should also be reflected in internal procedures and the annual report, including the management report.
Strengthen internal controls and risk management
One focus of an audit is the internal control system: how the company prevents errors and fraud and reduces the risk of misstatement in its financial information.
A modern internal control system includes, among other things:
- segregation of duties and appropriate access rights, so that one person does not perform and control an entire process from start to finish
- approval procedures and limits for significant transactions
- IT controls, including access rights, logs, automated calculation controls and the ability to review changes made in systems
- regular management review of reports
- identification of potential risks and systematic risk management
Effective internal controls are not merely something auditors expect to see. They help the company reduce risks in its day-to-day operations and keep processes running even when unexpected situations arise.
Prepare and gather materials in advance
Before the audit begins, the auditor provides a list of documents and data required to perform the audit procedures. These are generally shared through a secure file-sharing environment or audit portal.
To prepare effectively:
- Gather and prepare the required documents before the audit starts. Reviewing several versions of the same document during the audit prolongs the process because the same checks may need to be repeated.
- Use a consistent folder structure and logical file names.
- Avoid leaving the search for documents until the last minute.
- Prefer electronically signed and digital documents that are easy to track and archive.
- If a request is unclear, ask the auditor rather than making assumptions.
When the requested materials are provided by the agreed deadline and the documentation is of good quality, the audit can proceed considerably faster and with fewer follow-up questions.
Communicate with the auditor throughout the process
A significant amount of audit time can be spent on repeated questions and corrections. This can be reduced considerably when:
- the auditor is consulted before complex transactions are recorded
- questions during the audit are answered systematically and in a coordinated way, for example through a single contact person who gathers the necessary information
- management is aware of significant findings from previous audits and provides the necessary assessments and estimates on time
Resolving issues at an early stage is always more efficient than correcting errors retrospectively at the end of the audit.
Prioritise quality when preparing the annual report
Reviewing the annual report can become one of the most time-consuming parts of an audit if the report has been prepared in a hurry.
Common shortcomings include:
- missing or incorrect notes relating to significant balances or transactions
- incorrect references and cross-references between statements
- insufficient disclosure of significant matters, such as events after the reporting date and related-party transactions
- errors in the cash flow statement and inconsistencies with the balance sheet and income statement
- leaving the management report until the very end of the reporting process
What can help?
- Allow sufficient time to prepare the annual report.
- Review the previous year’s audit findings and address earlier shortcomings when preparing the new report.
- Where possible, use automated checklists or control tables to verify calculations, references and cross-references.
- Gather the necessary information and prepare a draft management report while compiling the initial financial data.
Providing the draft annual report and management report at the beginning of the audit demonstrates that the company has done its preparation and reviewed the accuracy of its balances.
Create one clear source of information
To make the audit faster and more transparent, it is useful to:
- create a dedicated audit folder or cloud-based data room containing all audit-related documents, including materials requested by the auditor, the draft annual report, inventory records, contracts and management assessments
- keep documentation structured and in a consistent format
A clear information-sharing process avoids unnecessary searching across different sources and gives both the company and the auditor a better overview.
Use an interim audit to spread the workload
For companies with more extensive business operations, it may be worth considering an interim audit, for example based on nine months of financial data. An interim audit is particularly advisable for a first-year audit or when changing auditors, as every company has its own characteristics and specific considerations.
An interim audit helps to:
- assess transactions and events that have already taken place
- discuss planned transactions that may have a significant impact on the financial statements
- establish the audit plan and identify key risk areas
- reduce the workload during the final audit
If the interim audit is performed effectively, the final audit can focus primarily on transactions from the remaining months and the final financial statements.
Ten practical steps to a successful audit
- Plan the audit early and build some flexibility into the schedule.
- Keep accounting records up to date and reconcile balances regularly.
- Update internal procedures as the business model and risks change.
- Strengthen internal controls to prevent errors and fraud.
- Prepare the requested materials before the audit begins.
- Communicate with the auditor throughout the process and coordinate communication through one contact person.
- Focus on quality rather than speed when preparing the annual report.
- Use a consistent folder structure and digital solutions for sharing documents.
- Keep management informed about the progress of the audit and any potential issues.
- Use an interim audit to spread the workload and avoid surprises during the final audit.
Following these steps consistently helps turn the audit into a collaborative process rather than merely a routine review. It also makes the audit faster, less stressful and more effective for everyone involved – the accounting team, company management and the auditor.
