Many organizations feel ambivalent about their yearly audit. They know it’s important, but there’s a sense of dread at the impending disruption and costs to the organization that, frankly, bring little to no obvious positive effect to the bottom line.
Fortunately there are ways to enhance the value of your audit – and even cut your audit-related costs over time. We recommend starting with your internal controls over financial reporting, which auditors are now required to review in order to meet legislative guidelines.
1. Be Proactive
Understanding what your auditors will be doing, how they do it, and what they expect – before the audit starts – is key to an efficient, successful audit. The traditional practices of hall-roaming, constant disruptions, and off-topic discussions should be mitigated in advance by having a plan to host, manage, and focus your auditors. Being proactive can include all of the activities identified in steps 2 through 6, and will lead to fewer headaches for everyone involved. Establishing a proactive effort around your audit will also set your
2. Actively Manage the Audit Staff
Assign one member of your internal team – the
3. Complete the
Regulations require auditors to scope their audit based on risk. In this environment, the risk assessment and segregation of duties analysis take on a new level of importance. Traditionally, auditors will spend time preparing these assessments themselves. We recommend taking this on internally, or outsourcing to a third-party expert that charges less per hour than your auditor. The key is to get your auditor’s approval of the methodologies behind the work and the results prior to starting the audit. Also, be sure you can support independence and objectivity when internal personnel are used. By working with the auditor on what you have prepared, you are already limiting and controlling the potential scope of the audit – and this can make a big difference in both the duration and the outcome.
Strive to balance your internal control counts, since too few controls put you at risk, and too many result in high audit and maintenance costs. Look at how many internal controls you have per employee in the finance department and, if the numbers seem skewed, consider undertaking a control rationalization effort before the end of your fiscal year. The best way to determine how many controls you need is to use a risk assessment to identify the highest areas of risk in your business, and focus mainly on those areas. Having redundant controls to mitigate the same risk is a good starting point, but over time you should be able to reduce this ideally down to one control per risk – saving you significant cost and effort as time goes on.
5. Document for Audit-ready Review
Documentation is another area where some simple, proactive work internally pays big rewards down the road. Find out how your auditor wants to see your documentation, and then follow an organized system that maps to their standards. Vibato recommends storing your monthly and quarter-end documents in binders that are tabbed out by topic (such as journal entries or bank statements). This kind of organization not only gives you a better sense of how far along you are at any given moment, it also makes it easy to find what you need during the audit – and ensures that your organization isn’t paying an auditor for something your own team could have done more cost-effectively.
6. Bring in a 3rd Party
Consider bringing in a reputable and experienced third party consultant for audit-related help that requires more independence or expertise than your internal team can offer. The right consultant acts as a client sounding board and advocate– which auditors no longer do—who can deliver focused, high quality service for a lower hourly rate than what an audit firm would charge for its senior partners. Rely on consultants when you need assistance with your risk assessment and segregation of duties analysis; for testing and documentation efforts; and for control implementations or rationalization efforts. The best consultants will offer established methods that have been proven to work, ensuring you get the most not only out of their expertise but out of your entire audit as well.