The annual audit is never an event that our clients look forward to. It can be time consuming for the client and, of course, quite costly. The Companies Act introduced a “lighter” alternative to the audit in the form of the independent review, however many clients, understandably, are seeking ways to reduce the costs.
In order to achieve the most efficient and effective approach to the audit or review it is essential that all parties work together – the three main players being the auditors; management, including those that have been appointed by management - from the financial manager to the accountant, bookkeepers, controllers; and the “employer” of both those parties – the Board of Directors[i]. In this article, we will focus on the role of management and what they could do to ensure the most efficient audit.
The first step is to ensure the accounting records are as close to “correct” as possible before the audit even starts. This can be done by:
- Confirming the accounting treatment of the transactions was in line with the related reporting framework (IFRS or IFRS for SMEs). We can assist where management is unsure of the application of any provisions of both. For example, make sure that asset purchases are debited to assets and not to repairs and maintenance, etc.
- Ensuring staff members process transactions onto the system correctly. There may be instances where further training may be required but some regular basic checks could go a long way. For example ensure that control accounts are cleared out every month using control totals when capturing payments.
- At the end of the year, management should ensure all balances are correctly reconciled to the respective schedules (for balance sheet accounts such as property, plant and equipment) or related listings (such as invoice listings for sales). Management will then be aware of any problems and may either pre-emptively resolve the issue, or gather sufficient information to present to the audit team.
In preparation for the engagement, the audit team would normally send a list of information they will require. Much of what the auditors request can be anticipated by accounting staff and management should ensure that those items are available before the beginning of the audit. This would include an up to date trial balance, the general ledger and all related listings and schedules. Our Audit Readiness department can also assist with gathering the required information and records if necessary.
The audit engagement itself should be planned during a time period that is convenient for the client and in such a way as to have all relevant staff present and available to assist the engagement team as much as possible. The process does can be somewhat disruptive to the staff involved, but with the correct level of co-operation and patience, it may be carried out effectively and efficiently to meet the correct benchmark of good governance.
Henk Heymans Jordan van der Merwe
Head of Audit Audit Senior
[i] These days, the board is referred to as “Those charged with governance” as it may be known by other names, such as management board, trustees, audit committee, executive committee, etc. In many smaller entities there is no practical distinction between management and those charged with governance. However the respective responsibilities remain, although it may be exercised by the same person(s).