Audit season typically results in a feeling of urgency, and for a few, panic. But it doesn't have to be that way. With proper preparation, audits can be simple, effective, and even educational.
No matter if you have a small business or an expanding startup, knowing what the auditors will be looking for and implementing basic systems can be the difference. In this post, we're going to guide you through some simple, real-world advice to get your business ready for audit season, with emphasis on internal controls, documentation, and being proactive.
1. Know Why Audits Are Important
Before getting into the how, it is helpful to know the why. An audit isn't merely about compliance or appeasing investors — it's a checkup on your business's health. It can identify financial blind spots, maintain regulatory compliance, and enhance credibility with stakeholders.
For startups, particularly those raising funds, neat and well-organised financial books speak a long way toward trust. For SMEs, periodic audits can enhance operational transparency and risk management.
2. Establish Strong Internal Controls
Internal controls are the foundation of a smooth audit process. They prevent mistakes, identify fraud, and ensure financial processes remain operational.
Here's how to make them stronger
● Segregation of duties: Make sure no one employee is doing both the recording and approving of a transaction. For instance, whoever makes payments should not be the same individual who authorises them.
● Approval workflows: Formalise approval procedures for payments, vendor payments, reimbursements, and financial commitments.
● Access controls: Restrict access to your financial systems or banking platforms.
● Periodic reconciliations: Conduct bank reconciliations, inventory counts, and account verifications monthly or quarterly.
Even as a lean startup with a small team, clearly defining these roles and keeping simple checks can minimise audit pain down the road.
3. Maintain Documentation Ready and Organised
Documentation is perhaps the largest time-saver during audit season. Auditors normally request various documents pertaining to financial statements, tax returns, and operational records.
Ensure the following are maintained and easily accessible:
● Vendor and customer invoices and receipts
● Payroll records
● Bank accounts and reconciliations
● Loan documents and legal agreements
● Inventory records
● GST and tax returns
If you’re using accounting software like Tally, Zoho, or QuickBooks, make sure it’s regularly updated and backed up. Keep digital folders organised by year and type of document. It may seem tedious, but it can save hours of stress during an audit.
4. Maintain Clean Books All Year Round
A seamless audit doesn't begin a few weeks prior to the arrival of the auditor — it begins with how you keep your books throughout the year.
Here are some healthy habits to develop:
● Close your books on a monthly or quarterly basis
● Have regular examinations of your trial balance and ledgers
● Mark unusual transactions or discrepancies as they happen
● Shun backdated entries unless unavoidable
Even when you have an outsourced CA or accountant, it is prudent to check your figures from time to time, preferably cash flows, big-ticket expenses, and receivables.
5. Be Aware of What Auditors Generally Do
Auditors are interested in the accuracy, consistency, and reasonableness of your financial statements. Their role is to verify transactions, ensure processes are being followed, and ascertain compliance with accounting principles.
Here's what they usually look for:
● Revenue recognition: Are sales recorded appropriately? Are there any unrecorded or overstated entries?
● Expense matching: Are expenses recorded appropriately within the same period as the revenues they are related to?
● Asset valuations: Are assets such as inventory, property, and equipment recorded fairly?
● Tax compliance: Are TDS, GST, and income tax returns accurate and timely?
Having knowledge of these focus areas can assist you in self-auditing prior to the actual audit.
6. Communicate with Your Auditor Early
Once your audit is booked, contact your auditor beforehand. Request a list of documents and explanations they'll require. This prepares you and prevents last-minute rushing.
Also, identify a point person from your team to liaise with the auditor. This facilitates ease in communication and keeps the auditing process on track.
7. Learn and Improve After Every Audit
Approach each audit as a learning experience. Following the audit, solicit feedback. What issues were raised? What might have been done differently?
Apply the findings of the audit to enhance your controls, refresh your processes, and maintain better records.
Last Thoughts: Preparation = Peace of Mind
Audit season does not have to be agonising. With basic internal controls, adequately maintained documentation, and upfront communication, you can make it a useful business check-up.
Whether you’re a first-time founder or a seasoned business owner, a little preparation throughout the year can make audits feel less like a storm and more like a breeze.
And remember: the goal of an audit isn’t just compliance, it’s building a stronger, more accountable business.
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