5 steps to preparing for a financial audit

Let’s face it: “audit” is a heavily dreaded word no business owner wants to hear, let alone think about. But even though an audit might seem unlikely, it’s crucial to prepare—because unexpected audits can occur, even to small businesses or self-employed individuals. True story.

The good news is that being well organized can help you to avoid costly mistakes and the penalties to match.

Financial audits are conducted to verify the accuracy of your business’s financial records, ensure compliance with tax laws, as well as to help you identify areas for financial improvement.

Here, we offer you 5 steps to getting audit-ready (hint: there’s no need to panic).

1. Organize financial documents: this is the big one—never ever skip this step. Gather and organize all of your financial records. This includes balance sheets, income statements, bank statements, invoices, and receipts, to name just a few. Be systematic, and ensure that your method of organization is clear.

2. Review internal controls: assess and strengthen your internal controls to make sure they are effective in preventing errors and fraud and that they align with best practices. For instance, you might review your cash handling controls by conducting surprise cash counts to make sure cash on hand matches recorded amounts. You might review your expense reporting controls by performing a detailed review of your expense reports to ensure all expenditures are properly documented and authorized according to company policy.

3. Reconcile accounts: regularly reconcile all your accounts—including bank accounts, credit cards, and accounts receivable/payable—to ensure all records are accurate and up to date. In other words, compare the financial records of any and all accounts with the company’s internal records to ensure they match.

4. Conduct a pre-audit review: perform an internal review or mock audit to identify and address any potential issues before an actual audit takes place. If you’ve already organized your financial documents, reviewed your internal controls, and reconciled your accounts, you’re largely there already. But remember, if any or all of the above reveal discrepancies, now’s the time to fix them.

5. Communicate with your audit team: in the event that an impending audit has been confirmed, it can only work in your favour to establish clear communication with your audit team. Provide them with all necessary information, and be prepared to answer their questions accurately and in a timely fashion. Don’t withhold relevant details or delay responses, as transparency and promptness are crucial for a smooth audit process!

Bottom line: preparing thoroughly for a financial audit is a great way to safeguard your business against future stresses, fines, and other unpleasant surprises.

Need a little expert guidance? Partnering with a professional accounting firm can help streamline the audit process, while also providing peace of mind by confirming that, yes, your financial practices meet all regulatory requirements—in other words, you got this.