Financial Statement Audit Preparation Challenges & Tips to Avoid
Maintaining accurate, timely, and reliable financial statements is challenging for any company – especially prior to an audit.
As experts in helping organizations drive financial statement audit success, we’ve outlined some of the most common challenges of the auditing process and alongside some steps to properly prepare.
What is a Financial Statement Audit?
A financial statement audit is the process of having an external auditor analyze your financial statements (re: balance sheets, income statements, cash flow statements and more) to ensure they are accurate, reliable, and in accordance with Generally Accepted Accounting Principles (GAAP) and other accounting standards and regulations.
The goal of a financial statement audit is to provide an independent, objective perspective of your financial performance, helping to cultivate stakeholder trust and ensure reliable decision-making.
Common Financial Statement Audit Preparation challenges & issues:
- Properly attributing the internal resources needed to ensure a successful financial statement auditing process.
- Compiling historical financial information and ensuring accuracy and reliability of related documentation and data.
- Having weaknesses in internal controls, financial documentation and/or operational procedures that cause timeline delays and incur additional costs during the auditing process.
- Managing auditor requests and adhering to strict deadlines.
- Complying with complex and ever-evolving laws and regulations.
- Friction with customers and stakeholders if an audit is failed, impacting the organization’s ability to grow.
Tips & Steps to Successfully Prepare for a Financial Statement Audit
- Consider hiring a project-based financial consultant to provide guidance and ensure a smoother financial statement auditing process.
- Understand financial statement audit requirements by reviewing the audit engagement letter.
- Compile relevant financial information and analyze financial statements.
- Assess the internal control matrix.
- Reconcile accounts as needed to avoid delays and incurred costs.
- Establish effective communication processes with auditors.
- Document the process and conduct a final pre-audit review to correct any outstanding issues identified within earlier steps.
1. Consider hiring a project-based financial consultant to provide guidance and ensure a smoother financial statement auditing process
The financial statement auditing process is wrought with complexity and requires careful preparation to ensure success.
Hiring a project-based audit preparation consultant or team from the get-go will alleviate the challenge of tracking down relevant financial data and insights, ensure the reliability of financial reporting and documentation, help establish swift compliance with laws and regulations, and drive seamless collaboration with auditors, teams, and other stakeholders.
2. Understand financial statement audit requirements
It is essential to understand the financial statement audit requirements the organization must adhere to by reviewing the audit engagement letter.
An audit engagement letter includes information regarding the accounting standards and regulatory requirements the organization will need to adhere to, outlines the auditor’s roles and responsibilities, provides a timeline for the auditing process, and details any auditing fees – all of which are essential for getting ahead of potential issues before they arise and setting the stage for future success.
3. Compile relevant financial information and analyze financial statements
Next, it’s essential to compile, organize, and analyze financial information for the auditor’s review – and it’s best to do this as soon as possible, as the auditor will be able to easily access everything they need and save time down the line.
This step includes gathering balance sheets, income statements, cash flow statements, and other financial documentation that will help the auditor ensure the reliability of your statements and reports and identify any issues that need to be corrected.
Conducting analyses of financial statements by comparing them to previous periods and industry benchmarks is also a great step to take, as it will provide an additional opportunity to correct issues before this information makes its way into an auditor’s hands.
4. Assess the internal control matrix
Properly preparing for a financial statement audit also requires assessing internal controls to ensure the organization and assets are safeguarded from risk, such as cybersecurity attacks, fraud, and other costly issues.
This will provide the opportunity to identify issues within the internal control matrix well ahead of time and ensure they’ve been corrected well before an auditor’s review.
5. Reconcile accounts as needed to avoid delays and incurred costs
One of the main reasons why additional fees are incurred during the auditing process is due to reconciliations.
Conducting account reconciliations as soon as possible will help identify omissions, unauthorized transactions, irregularities or suspicious activities while ensuring all transactions are properly accounted for.
This will provide an auditor with additional evidence that your financial statements are reliable and accurate.
6. Establish effective communication processes with auditors
Delays during an audit can distract from the day-to-day duties organizations need to conduct to reach their overall business goals – and these delays, in turn, can incur additional costs.
Throughout the course of the financial statement audit, it’s vital to establish effective communication processes with auditors to make sure they have everything they need, foster efficiency, cultivate a trusted relationship and avoid additional auditing fees.
7. Document the process and conduct a final pre-audit review to correct any outstanding issues identified within earlier steps
After everything has been compiled, it’s in good practice to review all the information one last time to provide a final chance to correct outstanding issues before an auditor steps in.
In addition, documenting the steps taken during the auditing process by outlining the decisions made and the rationale behind them will provide further evidence that the organization is making efforts to comply with laws and regulations – and save time during next year’s audit.
Final Thoughts on Financial Statement Audit Preparation
Whether it’s your first audit or simply your next, proper preparation is essential.
Without doing so, you’ll run into timeline delays, inefficiencies, unexpected costs and control deficiencies – and increase the potential for to fail an audit, leading to even more growth hurdles.
To put your best foot forward, consider hiring a project-based consultant to provide the expertise you need exactly where needed, help you get ahead of issues, and establish audit success.