Preparing for a “hassle free” audit

By Wendy Simmons, Audit Manager at Hobbs Sinclair

I love my job!

I know that this is not usually heard from a stereotypical “little grey (wo)man in the corner” accountant (or worse, auditor), but I really do!  I love the challenges, I love the interaction with clients, and I love seeing a client develop from the first-year engagement to an interaction with them a few years down the line.  Those clients that really value our input and our report to management points are taken seriously, and they see the value that we add to their business – by participating in the usual “annual grudge” purchase (an audit, or independent review) they make my job really enjoyable.

“I am very happy with the services your practice can offer, the warm and understanding way in which issues and queries are addressed, and the very efficient advice in terms of company, personal financial and tax structures, giving us the feeling that you are more a ‘partner’ than ‘just a supplier of services’.  And on a more personal note, I can also honestly say that you have managed to let me feel that an audit is not necessarily a ‘grudge purchase’!”  Uwe Harms – Owner of Showerline ShowerDoors (Pty) Ltd

 When we prepare for an audit, or independent review, depending on your “Public Interest Score”, as defined in the Companies Act (2008), we engage with our clients to ensure that the disruption of the daily business is as little possible – we understand that the normal business operations proceed as usual.

 “Exceptional service and professionalism from a small company. The review staff was well briefed and there was minimal disruption during the entire period that they were auditing us. Accounts were prepared soon after conclusion of review and ready within a short period of time. Would recommend Hobbs Sinclair, without any hesitation, to other companies.”  Doris Garrow – Financial Director of Synchron Markings (Pty) Ltd

 We have found that those clients that have pre-planned, and are prepared for the engagement, suffer less disruption than those who are disorganised.   When you have a properly established finance department – this can be only one person, depending on the size of your organisation – with a suitably qualified accountant or bookkeeper, who can prepare and reconcile your accounting records (and in the case of a statutory audit – prepare your annual financial statements), we find that the entire process is much less stressful.

As the owner, on a monthly basis, you should be:

a)     reviewing management accounts.

These can be as simple as an income statement and balance sheet printout – but make sure that you get them to review.  This ensures that the accounts staff are closing off the accounts every month and are actually preparing the reconciliations that you take for granted;  This may be obvious – but don’t only review the income statement and profit position – your balance sheet is important, and provides insight into the solvency and liquidity of your company (a Co’s Act requirement)

b)     reviewing the debtors list.

Make sure that the list contains only real debtors that are actually recoverable – ensure that they are followed up on regularly;

c)     reviewing the creditors list.

Make sure that the creditors list is reconciled to the creditor’s statements, and any differences are appropriate and real.  Enquire about whether they are complete – are there liabilities not in your accounting records that should be accounted for?

d)     reviewing the bank reconciliation.

Make sure that the bank reconciles – this seems like such an obvious point, but it is staggering how many people don’t reconcile their bank on a monthly basis.  As this is often the entire basis of a small business’s operations, when this isn’t being done, it means that all the other information generated is not reliable;

e)     reviewing your VAT reconciliation.

Make sure that your VAT reconciles monthly (or bi-monthly as may be the case).  Whilst we perform a detailed compliance review at the year end, you should be checking that your accountant reconciles your sales and your VAT control account to the accounting records every month.  Just looking at the typical box reports is not enough!

f)       reviewing your payroll reconciliation.

Make sure that what you submit to SARS on a monthly basis actually reconciles to the monies that you pay to your staff.

If you keep on top of this on a monthly basis, you ensure that your accountants are aware that you are checking their work, and your year end will run a lot more smoothly.  This list is not exhaustive, but gives a starting point to good hygienic accounting, for a small to medium-size business owner.  Remember that the Companies Act places all the responsibility on you, as director or owner, for the preparation of the financials and accounting records – whilst it is fine to delegate, the buck stops with you.

What we do to assist:

–                 We 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.

–                 We establish upfront what type of engagement you need to have performed, based on your own internal requirements, as well as the Companies Act requirements.

–                 We will send a comprehensive list of “information required”, based on our 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.

–                 We hold a planning meeting with the owner and the accountant, at the commencement of the engagement, so that both parties know what to expect and what is required in preparation for the audit/review.

–                 We provide a timeline. 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 – we 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.  We make ourselves available to the client at all times, and we request that you ask questions on the final accounts – there is no point in presenting a set of financial statements that the directors do not understand, or worse, don’t care about!

One of the less used but most important tools we provide at the end of our engagement, usually discussed during the sign-off meeting – is our report to management.  Generally we find that this “list of issues” grows shorter, the longer that we have engaged with the client; however, these are points ranging from matters of non-compliance to mere housekeeping matters.  We also normally indicate whether an issue raised is being raised for the first time, or whether it is a repeat “offence”.  When a client takes these points seriously, the audit/review process becomes far more efficient.

“We have been involved with Neill Hobbs and his associates since around 1999, in auditing and consulting roles.  We have found Neill, his partners, managers and staff to be excellent in all aspects of our relationship – very professional, knowledgeable, up to date in all relevant legislation and business practices – and we recommend their services without hesitation.” Chris Lane – Financial Director of Berry and Donaldson (Pty) Ltd 

We take our business, and yours, seriously!  Preparing up front for the annual audit/review; establishing good accounting hygiene, and taking a vested interest in the monthly accounts (as with everything, the tone is set at the top), is really the first step in preparing for a “hassle-free” audit.