Audits are inevitable in business, but they are often daunting for firms under the spotlight. The process is tremendously time-consuming and involves seemingly endless questions and demands from both auditors and internal stakeholders. Lacking planning and preparation, finance teams could easily be overwhelmed by an audit.
Sarah Spoja, CFO at Tipalti, a payment-software group, explains the chaos of an audit: “It can feel like you’re under the spotlight and it’s not always clear what you’re being asked for. You might discover that documents and schedules are missing or incomplete, which could take hours, days or weeks to rectify. Naturally, you’re doing all this while trying to maintain normal business operations.”
Businesses that provide inaccurate information might lose potential investors, be slapped with a negative audit opinion or incur financial losses. When an organisation endures an audit, it is often up to the finance leader to ensure the process is handled efficiently. Doing so will not only help the business cut costs in the face of rapidly rising audit fees but will also provide the CFO with the comfort of knowing that their firm’s books are up to scratch.
Audits are a cause of burnout for CFOs
More than three-quarters (77%) of UK finance leaders say the disruptive nature of audits causes them anxiety, according to data from Inflo, an audit firm. A third (31%) find the audit process to be slow and cumbersome and over half (59%) feel stressed and burnt out as a result. Alarmingly, nearly 1 in 5 (17%) say the mental toll is enough to drive them from their job.
For many firms, the biggest challenge is simply gathering and preparing the information required for the audit, as doing do requires considerable time and resources.
A lack of visibility into the audit process is also a common frustration, says Mark Edmonson, founder and CEO at Inflo. “Businesses must share information with auditors, but tracking the status of requests, deadlines and responsibilities can be challenging. This often leads to delays and friction between parties.”
He adds that businesses often perceive audits as ‘all-give no-take’ exercises. Despite investing substantial efforts in the process, firms are typically given nothing more than a signed audit opinion for their financial statements, with little additional insight or strategic benefit.
It is important to think of your auditor as a partner, not a spy
Audits tend to become increasingly stressful as a business grows, too. The process can take anywhere from a few weeks to several months, depending on the size of the organisation and the complexity of its financial records.
Keeping up with the complexities of a growing businesses is a challenge, Spoja says. “The ability to staff a team to keep up with everything is not an option and the breadth of what CFOs are expected to be knowledgeable about keeps expanding. There are now audit checks for ESG, cybersecurity, insurance and risk. It’s not just about closing the books anymore.”
Without careful management, the extra workload can weaken the finance function’s ability to operate effectively. Over half (57%) of finance leaders say that audits direct staff resources away from other core tasks and negatively impact business productivity.
The pressure of an audit can even have a knock-on effect on a talent-retention rates, notes Spoja.
Early preparation can alleviate the burden
Pete Fendall, chief finance and operating officer at Dow Schofield Watts, a business-advisory group, says keeping organised throughout the year can help to ease the burden of an audit and shorten the process. He advises firms to begin preparations as early as possible. This may involve rolling forward accounts, setting up accounting papers and assembling key documents that auditors will request, such as new material contracts, agreements and share awards.
Well-prepared and up-to-date accounting papers can streamline the audit, Fendall says. Every transaction should be properly documented and key judgements and estimates outlined, with strong cross-referencing with relevant accounting standards. “This upfront investment reduces pressure during the audit itself and makes complex financial areas easier to navigate,” he says.
Businesses must also prepare an audit timetable, Fendall adds, which should set clear deadlines and establish accountability for not only the finance team and auditors, but also for other stakeholders in the accounts process, such as sub-committee members, board representatives, marketing teams, printers, brokers and financial PR teams.
Darren Mercieca is managing director at MRC Audit, an audit firm. He recommends performing a dry run before the audit to ease the pressure on the finance team during busy season. Testing processes earlier in the financial year can help establish workflows and identify new ways of extracting data. “It’s a great way to catch any discrepancies or issues early on so you’re not scrambling to fix them when the auditors arrive,” he explains. “It gives you a chance to ensure your financial statements are in good shape and avoid any surprises. The goal is to take care of problems before they can arise.”
Get the right processes in place
Finance leaders must not overlook their internal controls. “I’ve seen plenty of situations where weak or outdated controls led to problems during the audit,” Mercieca says. It is important to regularly check, for example, that all systems and processes for recording transactions and reconciling accounts are working properly.
CFOs are also responsible for keeping up with any changes to regulations and accounting standards and ensuring the team is prepared for the year-end audit. “This should be done at least 12 months in advance, incorporating the changes into your team’s workload to alleviate pressure,” says Fendall.
Relationships matter
“It is important to think of your auditor as a partner, not a spy,” says Spoja. Despite dramatic depictions of auditors on TV interrogating employees and scrutinising finance documents, “they are there to work with you, not against you – so treat them as such.”
Coordination and communication are key to a smooth audit, particularly in large or dispersed organisations. Tipalti has four different auditors across the seven countries in which it operates. Keeping everyone on the same page therefore can be difficult.
Spoja says setting clear expectations can help with this challenge. She suggests establishing a main contact for the auditors, defining how questions will be handled throughout the process and scheduling status updates or meetings arrangements early on. “When communication breaks down, it can result in duplication of effort, miscommunication and delays,” she adds.
Edmonson agrees, adding that frequent communication will make the audit experience more efficient and constructive. Rather than waiting until the very end of the process to gather feedback, he recommends daily meetings with the audit team to check the status of the audit, the outcomes of the previous day and any obstacles the auditors are facing. “It’s about being close to the progression of the audit and resolving questions on a timely basis before they snowball.”
It is also worth spending extra time researching auditors to find a suitable partner. The auditor should have a deep understanding of the company’s operations and local regulatory obligations, Spoja stresses. “You need an audit partner who is able to keep up with the business as it grows. You don’t want to be constantly looking for new audit partners, that’s a massive disruption.”
Reflect and improve after each audit
Once the audit is complete, Fendall recommends taking time to review the process. “I usually conduct a debrief to assess what worked well and identify areas for improvement. Engaging auditors in this reflection can provide valuable insights that will help refine future audits.”
For all the planning and preparation, complications will inevitably arise. Mercieca warns: “I’ve seen missing or disorganised documentation cause delays. Sometimes auditors find discrepancies that you didn’t catch in your internal reviews. It can be stressful, but it’s something to be ready for.”
A well-run audit can provide valuable insights into how the business compares with industry peers and what teams should do to optimise financial processes. When managed effectively, an audit isn’t just an obligation, it’s also an opportunity.
Audits are inevitable in business, but they are often daunting for firms under the spotlight. The process is tremendously time-consuming and involves seemingly endless questions and demands from both auditors and internal stakeholders. Lacking planning and preparation, finance teams could easily be overwhelmed by an audit.
Sarah Spoja, CFO at Tipalti, a payment-software group, explains the chaos of an audit: “It can feel like you're under the spotlight and it’s not always clear what you’re being asked for. You might discover that documents and schedules are missing or incomplete, which could take hours, days or weeks to rectify. Naturally, you’re doing all this while trying to maintain normal business operations.”
Businesses that provide inaccurate information might lose potential investors, be slapped with a negative audit opinion or incur financial losses. When an organisation endures an audit, it is often up to the finance leader to ensure the process is handled efficiently. Doing so will not only help the business cut costs in the face of rapidly rising audit fees but will also provide the CFO with the comfort of knowing that their firm’s books are up to scratch.
