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Going through a business audit can be one of the most challenging tasks you’ll face as a small business owner. It can also be the scariest and most anxiety-inducing experience of your business. Just imagine, your company is being scrutinized from top to bottom. If there are any issues with your accounting practices or if you’re unable to answer a particular question, then chances are high that it will reflect poorly on your company. So, how do you ensure everything is in order so that you don’t get penalized for an oversight? Here are the best tips for surviving a business audit:
What is an Audit?
An Audit is the examination of an organization’s financial reports to ensure that all departments within that business follow the documented system of recording transactions and that their financial statements are accurate. It is done by someone independent of that organization. It is not just finance companies that require an audit, but rather any large-scale organization. Basically, if you have money going through your business, you must be able to demonstrate that you can keep track of it.
Do I Really Need an Audit?
The first thing to understand is why you are going through the auditing process. There are lots of reasons why you need an audit, the most important being a legal requirement for large businesses. The definition of a large business will vary based on where you are located. Still, you can typically take it to mean any business with more than 50 employees or a turnover of 1 Million.
Small Businesses are generally exempt from having to undergo an audit, but there are still many advantages to doing one. For example, audits can increase your company’s credibility, help prepare it for a sale or merger and overall improve your business performance.
An audit is about having an understanding of everything that is going on in your business and ensuring everything is being done in a way that complies with legal and ethical standards. Knowing the reason for the audit and understanding what it is, is the basis for all the subsequent tips and tricks to pass with flying colors.
7 Top Tips
1. Prepare in Advance
Waiting until the last minute to get your paperwork in order is the worst idea, and it will leave you with too little time to get your documentation together and makes it more likely things will be missing.
To prepare, you can also conduct an internal audit of your own books before the external audit. Conducting an internal audit is well worth the time it takes because it gives you a better understanding of your business. As the owner of your business, you should be intimately aware of all its processes and procedures. Importantly it also helps you proactively identify any weaknesses so that you can have a better chance of passing audits.
2. Embed Good Practice from the Start
The best preparation is always to be prepared. One way you can do this is by undergoing specific compliance training to ensure you are doing things properly. It allows you to train your employees in compliance and for you to see areas where understanding is weaker and what you can do to improve. Formalized training is also something you can show to auditors as another piece of evidence to demonstrate compliance.
3. Organization is Key
There are two types of people in the world, those who keep their digital files perfectly organized but the office is a mess of paperwork, and those who have a perfectly tidy office but open up their documents, and it’s folders of chaos. You want to be the elusive third person with both, as this is what an auditor will be looking for. Check what organizational strategies you have in place before the audit and ensure that everyone in your business understands them.
Organization is not just you who needs to be able to find your files but everyone else working with you and your auditor as well. It’s worth checking that you have everything labeled consistently and that you know where things are and can explain it to other people.
4. Be Transparent and Explain all Aspects of Your Business
They will check how transparent you are about everything that goes in and out of your business including on how to create a paystub for your employees.
Although a financial audit is the most common, there are several different types that may be helpful and relevant depending on what area your business is operating in.
Environmental audits are relatively new, but they are becoming increasingly important in showing how environmentally friendly your business is. This can be an important consideration for both funders and customers and is especially important to prove you are not participating in greenwashing.
5. Keep Channels of Communication Open
Keep a tight communication loop with your accountant, and make sure to follow up on all questions and requests promptly. It’s important that you can deliver any information to your auditor promptly and that you hand over all the documents they request.
Audits can be nerve-racking. You’ve worked hard on your business and are proud of what you have achieved, so it can be scary having someone come in and scrutinize your work. But try not to show your nerves, you likely have no reason to worry, and any problems are always fixable. Importantly don’t let your nervousness translate into avoidance or delays in communication.
6. Don’t be Afraid to ask Clarifying Questions
Auditors often visit with your accountants, and they’re afforded the opportunity to ask lots of clarifying questions. If you’re afraid to ask questions because you think the auditor might think that you don’t understand, you’re setting yourself up for failure. Make sure to ask questions as you review each section the auditor points out.
If you’re not sure how to answer a question, don’t be afraid to ask them to clarify or if the auditor can help you out. Auditors are usually very approachable and helpful. Asking them for more information helps save them time my making sure you are giving them the correct information. Even if you are not sure, in your response include as much as you can.
The crucial thing to remember that the auditor isn’t trying to pick a fight or deliberately fail you; they simply want to verify that you’re following the guidelines. So if you are unsure how to respond to a certain question, ask for clarification.
7. Respond with Honestly and Humility
Don’t make things up, be honest. If you can’t find a record, forging one is an absolute no. Instead, gather all the evidence you can and be honest with your auditor about any mistakes or weaknesses. They will find them anyway, and deliberately hiding or covering things up could end you in legal trouble.
You also need to accept the audit results and work to improve them. Just like with a bad review, it’s not time to get defensive! Take the feedback on board and make changes to your business to ensure you meet compliance standards.
The Bottom Line
When you go through a business audit, you have to remember that it’s not a reflection on you as an individual but on the business as a whole. Therefore, you need to make sure that you approach the audit process with confidence and a certain amount of humility. It would help if you also remembered that audits are done to ensure that companies are following certain guidelines, not individuals. It is not a personal judgment, no matter what it feels like. If you keep these tips in mind, you can easily pass an audit with flying colors.
