How to Approach the First Statutory Audit as a Business

It can be quite a daunting experience when your business grows to the extent that it exceeds the thresholds for a statutory audit. Understanding what the process entails, what you need to do as a business, who you should speak to for help, how much it will cost are all early thoughts that most business owners in this position will feel.

I joined Arc in August 2022 and they had recently exceeded the limits in the financial year ending 30^th June 2022 for the first time. The rules state that the limits must be exceeded in 2 consecutive financial years for an audit to be required so that gave me some time to prepare and forecast for the year ended 30^th June 2023 to identify if we were likely to exceed the limits again. Once it became clear that we would exceed the limits I started to prepare for the audit process and put the necessary steps in action.

Fortunately for me, my career started at an Accountancy Practice (Chadwick Chartered Accountants) all the way back in 1999 (!) and during my 7 ½ years there I progressed from Accounts Junior to Audit Senior and gained lots of valuable experience along the way. This grounding helped set the foundations for my career path before I made the move into industry, but I carried out hundreds of company audits before making the move.

This gave me the knowledge of how audits were carried out, what was looked at during an audit and most importantly what information auditors like to receive ahead of the audit commencing. For this reason I tend to perform each month end routine in a very similar way so that when the year-end comes around it’s not a major change and there isn’t a huge increase in the work required for the audit to take place.

I think the following steps are crucial in ensuring that a year end audit, especially if it’s the first one for a company goes smoothly and causes the least amount of disruption to a company and its staff:

Identify the right Auditor

This is probably the most important step as ideally you want to choose an Auditor who will work alongside the business for the long term and not need to be changed regularly. There are a number of factors to consider when choosing the right Auditor fit and these can include:

·        Cost

·        Location – will the audit be carried out remotely or on site

·        Auditors experience of the sector

There are also other factors to consider, but I think if you can be happy with the above 3 points then you will have made a good decision for the business and one that can lead to a long and ongoing business relationship.

Schedule the work in

Once the Audit firm has been chosen it is then important to agree a timetable that works for both the company  and the Auditors. Day to day work does not stop just because an audit is required and this means that the additional tasks have to be timed to consider key deadlines such as payroll processing, staff holidays etc.

There are different stages to the audit and especially in the first year of an audit being required as the Auditors will need to be given system notes to understand the key processes followed by the company in terms of who does what and when so that they can ensure their testing is suitable. These system notes will need to be prepared by somebody senior in the company Finance team who understands all of the elements of how the business operates detailing what controls are in place and segregation of duties where applicable.

Communicating with other members of the Finance team is also a key element of this stage as you can set out the impact upon their workload and ensure that the work is planned in at suitable stages for them. Providing the auditors with key named contacts for each area will also allow the work to progress smoothly, but I would recommend having one central who retains the responsibility for ensuring that the audit progresses in line with the agreed timetable.

Once the auditors have been provided with these notes and a set of year end management accounts they will then use in their planning stage to determine the level of risk in each key area and the amount of work required.

Prepare the work in advance of the Audit commencing

The majority of auditors will provide a deliverables list so that the items required for them to carry out their audit work goes smoothly. This will consist of the following items:

·        Year end Management Accounts including a P&L and Balance Sheet

·        Full reconciliations for all Balance Sheet accounts

·        A financial review highlighting any key variances between this year and last year

·        Copy bank statements

·        Invoices for Capital purchases

·        Stock count if applicable

·        Confirmation of HMRC balances owing at the year end

·        Read only access to the Finance system

·        Bank letters

There will be additional items requested as the audit testing progresses and samples are selected by the auditors, but that will not be known at the outset of the work taking place. These samples may include payroll records, sales invoices and purchase invoices.

Provide the information in line with an agreed timetable

As noted above, a timetable showing all of the key stages should be agreed at the planning stage. This will allow all of the necessary planning to take place and for work to be scheduled in at suitable times. It also ensures that everybody is aware of how the work is progressing as some of the work may be taking place off-site at the Auditors offices. The timetable ensures visibility for the business owners, Finance staff assisting with the audit and the Auditors so that everyone is clear where the work is up to and when the process will complete.

Set an expected filing date for the year end accounts

The audited accounts will be filed at Companies House and be available to the public, with additional disclosures required for audited accounts. The deadline for filing year-end statutory accounts is 9 months from the year end date, but they can be filed earlier if suitable. Personally I prefer to have the audit work performed and finalised as quickly as possible and the accounts filed at Companies House at the earliest possible stage. This is because the next financial year is already in full flow so extending the timetable for working on the previous year’s figures just becomes a distraction and doesn’t add any value to the current year.

Once the above steps have all been carried out, the audit has been signed off successfully and the accounts filed at Companies House, then it’s time to do it all again! However, if the early stages of the process have been performed correctly then it becomes easier each year as the Auditors gain a greater understanding of the business.

Good luck for any companies who are just about to start the above process and don’t worry, there are lots and lots of excellent audit firms who will be able to assist you with the work required.