Why are organizations struggling with the audit management process?
Trepidation and unease play a pivotal role in the audit process. Auditors have garnered a reputation of fostering fear. This fear does not have a correlation with the confidence of a team’s management competencies but rather the perception of others. Having a team of auditors come into an organization requesting a detailed list of all transactions that occurred during the fiscal year can be intimidating. It can be daunting for the entire financial team, especially the Chief Financial Officer (CFO), who is tasked with oversight of the audit process and bears the ultimate responsibility. Additionally, CFO’s often have to take steps to ensure a comfortable environment for the auditors that portray trust and understanding. Organizations often struggle with controlling their fear and consequently adopt defensive strategies against the audit team, which in turn lead to the struggles within the audit management process.
What is your advice for organizations to prepare for an independent third party coming in for the audit session, and how important is it to coordinate with the auditor to facilitate a painless audit?
The first step to ease the audit process is to understand the audit plan and objective. Conducting frequent meetings with the team to ensure there is an understanding of the process and procedures is imperative as well as discussing the struggles from the previous audit and finding effective ways to improve them. Teams can also reduce frustration and high anxiety with proper planning and preparation. Additionally, open communication between the team and CFO regarding new or unusual transactions can minimize concerns during the audit.
The second step would be to understand any new accounting procedures which would result in updating documentation and re-organizing the chart of accounts prior to the audit. This will give the department ample time to implement new standards. Additionally, developing a timeline and assigning responsibilities to each staff member with firm deadlines will be invaluable for when auditors request required financial statements, schedules, and work papers. For my personal use during audit season, I have created an internal audit checklist that designates staff responsible for all financial and non-financial aspects of the audit. This includes but is not limited to journal entries, revenue and expense reconciliations, and specific internal control areas. I often reiterate my typical cliché on the header of the checklist to provide some comic relief, “The audit is a time to measure ourselves and to stop procrastination of those monthly schedules” The checklist provides clarity and organization to the auditors to help avoid time wasted on the part of both teams.
The audit process is a retrospective exercise. As such, during the audit when the auditors have trouble understanding something, ask for adjusting entries, or have questions about what occurred throughout the year, it is like an evaluation of their work for the prior year. Throughout the year, they need to verify that their journal entries are accurate, are being reviewed, and are in compliance with Generally Accepted Accounting Principles (GAAP) as well as accounting standards.
The audit is a time to measure ourselves
The final step is to perform a selfreview and evaluate the department prior to the start of the audit. Review all of the required materials and assess the overall financial statements. Ask the staff difficult questions that pertain to their duties, so they are prepared for any possible scenario. To recap, proper planning is key in the preparation of an audit.
What are your views on the importance of having strong, updated policies and procedures at an organization? In your experience, what role does it play at your organization?
Having solid and up to date policies and procedures are essential to a successful organization. It makes it easier to manage the department and the finances of the organization with a strong structure. As a CFO, it’s crucial that I review them regularly and ensure they are being followed. In addition, make certain that policies and procedures are updated regularly. Reviewing them annually is also a good practice for any business.
Policies and procedures from an overall standpoint, provide a guide for employees to follow while keeping internal controls as well as compliance issues in place. Strong policies and procedures, especially in the finance world, is the cornerstone of a successful audit. As auditors sometimes say, “Internal control is the key in accounting; it is the key to managing the transactions”.
How do you bridge the communication gap between your team and the audit team throughout the process?
Proper planning and preparation lead to an effective and efficient audit as it mitigates miscommunication, confusion and redundancy. Inefficiency in audits is partially due to duplication, where the finance team members would inadvertently handle the same task multiple times. This is one of the many reasons why an audit checklist is valuable as it provides organizational structure. In my department, I divide my team’s tasks based on their responsibilities and notify the auditors which person handles each component. Furthermore, assure that the auditors are knowledgeable in terms of health centres and help the auditors understand the compliance requirements.
For proper coordination among the teams, it is necessary to build trust as I firmly believe that to be the foundation of all relationships. Auditors rely on the internal accounting team to provide them with all necessary documents, and to complete the impartial tests of their financial statements. The staff should understand that they are being entrusted with a vital role in the audit. This allows each staff to feel important and valued in the organization. Also, it is necessary to have documents and records accessible. It allows the auditors to be efficient while simultaneously giving the internal accounting team a chance to go through all the details and work out all the deficiencies. It also allows the internal team to immerse itself once again in the years’ worth of transactions. Once the external auditors arrive, they are instantly updated with all the details and the supporting documentation.
What would your advice be to your fellow CFOs and peers on how they can go ahead and mark their audit process a successful one?
The defining sign of a successful audit is if there are no material journal entries proposed by the auditors. Being available to respond to all audit inquiries and being able to elaborate on all supporting documents without hesitations also showcases efficiency and preparedness. Auditors have a clear understanding as to if an organization is prepared and have followed appropriate policies and procedures. This consistent flow will boost morale within the department as their knowledge, and clear focus would necessarily lead to receiving a high grade on the report. Furthermore, it will re-energize staff to continue improving the current processes as it will require continuous effort to maintain organization. My advice to peers would once again be to prepare and plan as best possible as these are the fundamentals needed for a successful audit.