A financial audit can be a daunting experience, able to frighten everyone out there. However, when you run a business, this is actually part of it, especially if you’re after raising some capital for an expansion or growth.
Preparing for audits can be stressful and time-consuming, but not impossible. Having a plan is definitely important, but knowing what to pay attention to will also ensure you’re fully prepared for the process. Here’s how to get everything in line.
Financial Documents
Make sure you keep financial documents if you don’t want to upset your financial statement auditor. Receipts, purchases, all these things should be kept. Also, when processing payments for anything, you need itemized invoices as well.
It might be wise to set up an email address for nothing but financial correspondence. It’s easier to find what you need.
How long should you store financial documents?
There are different stories out there. Some business owners keep financial records indefinitely. Others do it for five years or maybe 10. Play it safe and find a safe place to store them indefinitely if you can. Storing them in a digital manner is much easier.
Failing to maintain proper financial documentation can lead to several negative outcomes including auditing issues, inaccurate financial reporting, and legal complications.
Organize Everything
Storing financial documents isn’t everything. You need a top-notch organization. Simply store them by date, a separate box or folder for each month. There are also all kinds of accounting software programs to help you organize these. Receipts and invoices, everything should be kept all together.
You also need to categorize documents into types such as income, expenses, and payroll and ensure each is clearly labeled with the dates and relevant details. This will reduce the risk of misplacement.
Quick Checklist
A financial audit comes with many requirements. Here are a few things you should always have at hand, just to prevent unnecessary headaches:
- Each transaction must be assigned to an account
- Evaluate financial statements
- Compile documents in an organized manner
- Pay attention to the deferred tax asset for tax deductions
- Keep an eye on trial balances, which cover all the accounts’ values
- Make sure you know the accounting methods used
- Prove that you comply with laws and regulations
- Have a plan in place for debt management
- Monitor internal controls over financial reporting
Consider GAAP Standards
GAAP stands for Generally Accepted Accounting Principles. Many auditors rely on these principles before anything else in order to evaluate the financial situation of your company. The process may require more time to consider the financial aspects of related elements too, such as board members or investors.
GAAP compliance goes in more directions and depends on the type of company you have. For example, a manufacturing company may focus heavily on inventory accounting methods, while a service-based business might prioritize revenue recognition and expense matching.
Seek Help
Don’t hesitate to seek professional help if you’re not sure what you’re doing. A professional accountant will make sure you’re already ready for an audit. Tax documents can be confusing if you’re not sure what to do. Besides, without education or experience, you’ll find the process very time-consuming too.
Tips and Tricks During an Audit
It’s just as important to see the audit as a professional collaboration, rather than an attack. It’s a common mistake business owners make. Unfortunately, it may turn against you. Generally speaking, you’ll have to communicate in an effective manner and go through all the procedures in a hassle-free manner.
- Communicate. You need to communicate with the auditor for the audit to be successful. The relationship should be healthy and professional. If they need to get in touch with you, make sure you’re always available.
- Set priorities. The audit could be a challenging issue that may disrupt your daily activities. It’s normal, most people feel like this. However, the audit has to be your priority in order to get it done as quickly as possible. Based on the size of your company, you may need a team for the audit.
- Follow the checklist. Prior to the start of your audit, you’ll get a PBC (Prepared By Client) list, which is basically a checklist. If you’re keeping your documents organized, you’ll most likely have about 90% of what’s required anyway, hence the necessity to keep your stuff in order.
- Prepare thoroughly. Before the audit, review your financial records, ensuring all discrepancies are addressed. Conduct an internal audit to identify potential issues, allowing you to correct them before the official audit begins.
- Create a supportive environment. Throughout the audit process, it’s necessary to manage stress by staying organized and fostering a supportive environment within your team.
In the end, a comprehensive financial audit checklist is a vital tool for startups, ensuring a smooth and efficient audit process. It not only simplifies the audit experience but also reinforces financial integrity, which allows founders to focus on growing their business.
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