Tis the Season to be ........ preparing for your next audit/review?

As the Australian reporting season winds up, with the vast majority of AGMs over now, it is an appropriate time for each business to reflect.....on how much of a nightmare the audit was.

Hopefully, your audit season was smooth sailing, with the audit starting on time, no late issues identified, accounts and reports finalised a week before the Audit Committee (or Board Meeting) and no uncomfortable audit fee overrun discussions.

Actually, if you scored any two of those, you are probably doing well and are looking forward to a relaxing break over the holidays - as you have the half year (or full year) under control already.

However, this post isn't aimed at businesses who have their audit processes under control, it's more for those that don't.  Set out below are some practical tips for those businesses who didn't have a smooth audit season last time and are hoping that because this is a half year, things will be easier this time.  Without a plan, that's probably not going to happen.


But first, let's identify the underlying issues that create the problems in the first place.

In overview, the audit is simply a question of the auditors being able to see what management have done in respect of EACH number disclosed in the annual report and for them to determine whether the annual report complies with the legislation.

In theory, an audit is simple - it is just a question of showing the auditors where the numbers in the financial statements come from.

In order for this to happen, clearly, we need the following things in place:

1. A set of Financial Statements/Annual Report for the auditors to audit/review;
2. Supporting documentation showing the calculations used to prepare the financial statements, including the trial balance they are based on.
3. A protocol (including a timetable) detailing how the audit will be carried out.

When set out like that, it looks really easy, but every finance team knows that isn't the case.  There are generally so many competing pressures, plus the fact that the statements are only produced once a year (and are hence unfamiliar),  so it's very normal for all sorts of complications to arise.

Let's look at the common issues that usually pop up:

• Statements not prepared when the auditors start;
• Trial balance not finalised at start time;
• Difficulty in tracing financial statements numbers back to trial balance, either because there are highly complicated consolidation spreadsheets, numerous individual spreadsheets for individual disclosures or hard coded numbers used as adjustments.
• Multiple versions of financial statements, some with major changes, some with minor.
• Time delays resulting in a need to work late hours to meet board deadlines.

The result of these issues is normally unwarranted stress on both the finance team and the audit team, time delays, not to mention uncomfortable discussions about additional audit fees.

Practical Tips for Preparing for your Audit/Review:

1)  Develop an agreed protocol and timetable, and stick to it.

The protocol should clearly specify what will be provided by the business, how it will be provided  and when it will be given.  A clear timetable of deliverables (both from the client and the auditor) is necessary (if only for the fee overrun discussion at the end).

Auditors are, obviously, very busy over the audit season.  Clients running late is a major cause of compounding delays - the client is late, the audit team can't complete their work, they move to a client who is ready and have less time for your audit etc.   Delays cause fee overruns.

Some key tips for the protocol and timetable:

• Make sure you can deliver your part of the timetable.
• A set of financial statements at the beginning of the audit makes the entire process simpler.  Always plan to have a set for the auditors when they arrive.
• There should only be 2 or 3 sets of financial statements that pass to the auditors.  One at the beginning, one after the audit work is completed with adjustments made and the final one for signing.  This doesn't mean there aren't multiple changes (even versions) inside the company, but only that the auditors don't see the multitude of intervening sets.

2) Transparency is the key to a successful audit

The end result of an audit process is, of course, the audit opinion on the Financial Statements.  However, between the trial balance and the financial statements, there are a number of summarisations, adjustments, analyses, splits and calculations.  

If you, in the business, can easily trace the a financial statements number back, through any adjustments, to the GL (or the subsidiary GL in the case of a consolidated entity), there are likely to be a number of benefits.

Firstly, it is more likely that the adjustments will be understandable and easily reviewed for correctness.

Secondly, it will make the auditors work much easier - saving their time is the way to a fee decrease!

Key tips for Transparency:

• Avoid hard coded numbers without explanations.  It is FAR better to show the calculation of the number off to the side, or at least have an explanation of where the number came from.  This will be very useful, not only for the auditors this year, but also to remember what the number was for next year!
• Put as many disclosure sheets into the main consolidation workbook (or main workbook if you have no consolidation) as possible.  Cashflow calculations, Statement of Changes, notes, everything.  Link to the Consolidation or the trial balance (using SumIf to group amounts).
• Ensure that adjustments are made to the TB, avoiding adjustments in the workbook.  Otherwise you have to remember to make the workbook adjustments in the TB before the roll forward!
• Make sure the consolidation workbook is easy to follow.  Use the Input/Process/Output (see the blog posts on Practical Excel Reports for tips how to do that).

3)  Communicate with the Audit team

It is really helpful to communicate with the audit team during and before the audit.  In the lead-up, communicate what is ready and whether there will be a delay in information.  It is far better to delay the start (where possible) if you are running behind than for the auditors to waste time auditing changing numbers.

During the audit, get details of proposed issues and changes to the financials.  In particular, push hard to get any impacts of changes to accounting standards which you may have missed - these can require a lot of work to fix so it's much better to get started as soon as possible.

Also, be very clear (keep emails etc) about delays and potential cost overruns, particularly if subjective issues arise.  Having a documented trail is very helpful later.


4)  Now is the time to make a change

It's early December and people are looking forward to their Christmas break.  It may not seem like a good time to start making changes to workbooks and start preparing for the half year (or full year!).   Now is, however, a very good time.   Rebuilding a workbook doesn't take a long time, and it will be rewarding knowing that steps are being taken to make next year easier.    For those of you with half years, this is a perfect opportunity to test and bed down the new workbook in advance of the full year.

At the very least, finalise the protocol and timetable, or review the changes to the accounting standards to get an idea of what is changing.

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I hope that you find this article useful!  If you have any tips of your own, I'd be very keen to hear them.  Feel free to drop me an email at contact@practicalreporting.com.au or comment on this article.


Practical Reporting has many years of experience in making audit processes smoother and less painful.  Services offered range from assistance in developing a timetable and protocol, through to assistance improving the transparency of your workbooks and all the way to preparation  or review of financial statements.