The role of external auditors is ultimately to assess whether an organization’s financial statements are a true and accurate reflection of the performance of the business. In turn that gives stakeholders such as investors and partners confidence in the numbers.
But this is no box-ticking exercise. The quality of the audit is paramount, particularly in light of high-profile cases where auditors have been fined for failing to identify fraud or financial misstatement that they should have spotted. Auditors are increasingly focused on issues such as ease of access to evidence to substantiate a transaction or process, or compliance testing to ensure controls are fit for purpose and can avoid fraud and human error.
Having a good audit means that time-consuming compliance and substantive transaction testing can be minimized, but it can also help keep audit fees in check. And, of course, it’s a sign to investors and regulators of a well-run organization.
Top organizations use finace automation to save time and effort while they ensure that all processes are unified, compliant and 100% auditable. Learn more about preventing a bad audit from Adrian Li, finance transformation expert, in the recent podcast on how to prevent a bad audit.
Along with this, here are four areas you can address to keep your auditors happy:
1. Control weaknesses
Manual journals, particularly high-value ones, are always a big focus of audits. That’s not surprising given that manual journal entries were used in some of the biggest financial frauds of recent times, including WorldCom and Xerox. The way to get ahead of your auditors is to improve controls around the journals and the adjustment process. That means eliminating as many manual journal entries as possible and using finance automation to create more controlled processes that support the detection and prevention of fraud.
2. Audit evidence
This is an issue with intercompany transactions. That’s because it is far easier to hide fraudulent transactions between companies within a group than it is for transactions with external customers and suppliers, particularly in a process that is still highly manual and sub-optimal in many organizations. Automating intercompany management improves transparency and auditability. The process is formalized, the handoffs and handovers are managed and there is supporting evidence every step of the way. The automation creates an audit trail of evidence to support all intercompany transaction and reconciliation activity.
3. Completeness and accuracy of financial records
How thorough is your balance sheet reconciliation process? How and when is it performed? Who does it? What segregation of duties is in place and how much manual effort is involved? These questions will all influence not only the level of compliance testing by your external auditor but also the level of more detailed substantive testing of transactions. Automating the balance sheet reconciliation process eliminates manual errors and omissions of data and makes it possible to do reconciliation at the start of the financial close to avoid late consolidation adjustments. It also provides exception alerts and audit trails that help prevent and detect issues and errors. The more robust your balance sheet reconciliation process, the higher the confidence in the numbers your auditor will have.
4. Internal controls and compliance
This is a problem for organizations that still use spreadsheets for their financial close checklist management. That’s because a standalone offline spreadsheet doesn’t give insight into the process flows behind each task on the close checklist. And the checklist in the spreadsheet often bears no resemblance to how those tasks are performed and executed. With financial close checklist automation, however, there is a clear and visual demonstration of the internal controls in the process flows and the steps taken to prepare the period-end financial statements. Unlike a spreadsheet, the automation actually drives the closing process, too. It orchestrates and executes the tasks in line with the controls in place. And that visibility helps give the auditor confidence in your processes and controls and reduces the likelihood of the need for more compliance testing.
Find out how Redwood Finance Automation helps you implement the robust financial close controls and process flows that will keep your auditors happy.