An audit that runs long is often not a difficult audit. It is an audit that started before the company was ready. The auditors spend the first week building schedules the company could have produced in a day, and everything after that slips — the accounts, the AGM, the filings that follow.
Most of that is avoidable, and none of it requires an accounting department.
Start with a closed trial balance
The single most useful thing management can do is close the books properly before fieldwork begins, and not reopen them afterwards.
That means the ledgers are complete to the year-end, the control accounts agree, the bank accounts are reconciled, and the trial balance handed over is the one the accounts will be built from. An audit conducted against a moving trial balance is largely an audit done twice, and it tends to be charged accordingly.
If closing entries are still to be posted — depreciation, accruals, provisions — post them. If you are unsure how, ask before fieldwork rather than during it.
The schedules that support the balance sheet
Every material balance needs something behind it. These are the ones whose absence most often holds an audit up:
- Bank. Reconciliations for every account at the year-end, with statements. Confirmations take time to come back, so requests should go out early.
- Receivables. An ageing that agrees to the ledger control account, with older balances identified and a view on collectability.
- Payables and accruals. The same, plus goods and services received before the year-end but invoiced after it.
- Inventory. Quantities, valuation basis and the calculation.
- Fixed assets. A register reconciling to the ledger, showing additions and disposals with supporting invoices, and the depreciation calculation.
- Loans and financing. Agreements, repayment schedules, the current and non-current split, and confirmation of balances.
- Taxation. Returns filed for the year, assessments and notices received, and the reconciliation between accounting profit and the tax position.
- Related parties. A list of related parties and the transactions with them during the year. Far easier to compile as you go than to reconstruct.
The year-end stocktake deserves planning
Where inventory is material to the financial statements, auditing standards require the auditor to attend physical inventory counting unless doing so is impracticable. General inconvenience does not make attendance impracticable — the standard has in mind matters such as the nature or location of the inventory.
Where attendance genuinely is impracticable, the auditor performs alternative procedures to obtain sufficient appropriate audit evidence about the existence and condition of inventory. Those procedures can be sufficient. It is only where sufficient appropriate audit evidence ultimately cannot be obtained that the auditor is required to modify the opinion.
The practical consequence for management is straightforward: a count that is planned, scheduled and notified to the auditors in good time avoids the question entirely. Count everything, including goods held at third parties and goods in transit, and record the cut-off — the last delivery in and the last despatch out — because the reliability of the count depends on it.
Things that surface late and shouldn't
Prior-year adjustments. If something in last year's figures was wrong, say so at the start rather than in week three.
Litigation and claims. Any dispute, demand or proceeding — tax, commercial, employment — should be on the table. Auditors are required to design procedures to identify litigation and claims that may give rise to a risk of material misstatement, which typically includes inquiry of management, reviewing minutes and reviewing legal expense accounts. Where litigation or claims have been identified and the auditor assesses a risk of material misstatement, or where other procedures indicate that material litigation or claims may exist, the auditor may seek direct communication with the company's external legal counsel. That is a conditional step, not a routine one.
Events after the year-end. A significant customer that failed in January matters to a December balance sheet. So does a major borrowing, a disposal or a change of ownership.
Going concern. If the business depends on continued facilities, on a shareholder's support or on a contract being renewed, that is a conversation to have early and with documents, rather than a question answered under time pressure at the end.
What management is asked to sign
At the close of the audit, management signs a representation letter confirming matters the auditors cannot verify independently — the completeness of the records, the disclosure of related parties, the treatment of claims, events after the reporting date. Read it properly. It is a statement of fact by the company's own management, and it should not be the first time anyone in the business has considered what is in it.
What management should do
- Close the books first and hand over a trial balance you are prepared to stand behind.
- Reconcile every bank account to the year-end, and send confirmation requests early.
- Prepare the standing schedules — receivables and payables ageings, fixed asset register, inventory valuation, loan schedules, tax reconciliation.
- Diarise the stocktake before the year-end and tell the auditors the date, early enough for them to attend.
- Compile the related-party list during the year rather than at the end.
- Disclose litigation, prior-year errors and post-year-end events at the start of fieldwork.
- Name one person inside the business who owns the audit file and answers queries, so requests do not sit for days.
- Read the representation letter before the last afternoon.
A company that does these things is generally audited faster and with fewer surprises — and reaches its AGM and the filings that follow it on time, which is usually the point.
If you are approaching a first audit, or the last one was harder than it should have been, tell us the year-end and roughly what the business does. We can set out what to have ready and what it is likely to involve.
This note is general information, not advice on your particular circumstances. Tax law and deadlines change — please confirm the position before acting on it.