“An audit, or independent review, engagement no longer needs to just be an annual grudge purchase” says Wendy Simmons, Audit Manager at Hobbs Sinclair Incorporated, a Cape Town-based accounting and auditing firm.
“When we engage with a client for an audit, or independent review, [depending on your “Public Interest Score”, as defined in the Companies Act (2008)], we plan meticulously upfront, and in advance, in order to ensure that there is as little disruption of the daily business as possible – we understand that the normal business operations need to proceed as usual” says Simmons.
Simmons gives some suggestions to the owner-managed businesses to pre-prepare for their audit / review:
a) Have a properly established finance department.
Depending on the size of the organisation, this can be one person, who is a suitably qualified accountant or bookkeeper, who can prepare and reconcile the accounting records up to at least trial balance level (and in the case of a statutory audit – prepare your annual financial statements).
b) Review your monthly management accounts.
“Management accounts” can be as simple as an income statement and balance sheet printout. This ensures accountability from the accounting staff, and also makes sure that the owner knows what is going on in their business, ultimately putting them in a position to make informed, and accurate, business decisions.
Within the management accounts make sure that (inter alia)
i) there is a debtors list; reconciled to contain only real, collectible debtors.
ii) there is a creditors list; that it is complete and reconciled to third party statements.
iii) there is a bank reconciliation; that reconciles to the underlying bank statement.
iv) there is a VAT reconciliation; that both the control account and the sales reconcile to the financial records.
v) there is a payroll reconciliation; that what is submitted to SARS actually reconciles to that which is paid to staff.
vi) there is a fixed asset register; this should be updated on a monthly basis, and include all assets on your premises.
What your audit firm should do to assist:
– Communicate at the beginning of the year, which months you can expect your audit/review to be conducted. This helps you plan your staff and your year-end closure accordingly.
– Establish up
– Send a comprehensive list of “information required”, based on previous experience with your review/audit, or based on discussions held with your directors, that we would request that you prepare, ahead of the time. This gives you a checklist to work towards.
– Hold a planning meeting with the owner, and the accountant, at the commencement of the engagement, so that both parties know what to expect, where risks are noted to lie. This meeting also generally covers deficiencies identified in the accounting records, so that the accountant has time to correct them before the audit / review begins.
– Providing a timeline or expected duration of the engagement is most helpful to clients, as they can plan their own internal staff requirements accordingly. Unfortunately, despite our best efforts, there is some form of disruption to the daily operations – this is better managed, and overcome, if everyone is aware of the expectations up front.
– Manager involvement – make sure that the audit/review manager and/or supervisor is available to resolve any queries as they arise on the engagement, so that there is no significant time delay in the finalisation of the review/audit. Your auditor should be available to the client at all times, to ensure that you understand the final financial statements presented. The Companies Act places the responsibility for the preparation of the financial statements directors, and as such, your auditor should explain accounting concepts and the financials, in “laymans” terms, so that you understand exactly what is presented.
– Report to management – a summary (not exhaustive) of deficiencies identified during engagement, that are of sufficient importance to merit being reported to you, along with recommendations for improvements. When a client takes these points seriously, their own business improves.
Simmons says “As far as possible, bearing in mind our independence and other ethical requirements, we try to match audit teams with clients, and similar people together, in order to foster relationships. Although we are required to be independent, there’s no reason that we shouldn’t work well with a client during the engagement. I have found that less rotation of audit/review staff on a client engagement provides more efficiency, as the initial learning curve, in getting to know the client’s business, systems and procedures, is much quicker.”
Audit reports and independent practitioner review reports are valuable to every business and should be considered as an important part of the business process.
Companies should also check that their audit is not overdue, the Companies Act requires that all financial statements are finalised within 6 months of the financial year end, and that their auditor is appropriately registered with the required governing bodies.