From stress to success: How businesses can get the most out of their audit experience

What factors are driving change within the audit industry and how can businesses derive more value from their audit experience? Inflo CEO Mark Edmondson recently sat down with Raconteur magazine to discuss these topics.

Below is the full discussion, which looks at:

• key technologies that are creating newfound efficiencies in audit
• strategies finance leaders can use when working with their auditors
• common pitfalls and how to avoid them
• and much more.

What are the main challenges businesses face during the audit process?

The biggest challenge for businesses during an audit is the sheer amount of time required to gather and prepare the necessary information for auditors. Extensive documentation is needed to plan and execute the audit, perform testing, and work through the identified risks.

A lack of visibility into the audit process is also a common frustration. Businesses must share information with auditors, but tracking the status of requests, deadlines, and responsibilities can be challenging. This often leads to delays and friction between both parties.

Late issues

Additionally, significant issues are sometimes identified late in the audit process, which can impact the numbers in the financial statements. These last-minute findings can create stress and disruption for finance teams.

Lastly, businesses often feel they receive limited value from the audit process. Despite investing substantial effort, many only receive a signed audit opinion for their financial statements, with little additional insight or strategic benefit.

How can businesses best prepare for audits?

Engage with your auditors early. Meet with them before the audit begins to clarify the information required. Agree on deadlines. Discuss any changes from prior years that could affect the process, such as changes in auditing or accounting rules or anything that may impact financial statement disclosures.

Clients should be asking how their auditor is going to be using technology as part of their preparation process. Client collaboration platforms, for example, can streamline the process by:

• breaking down audit requests
• allocating them to the right team members
• setting assigned deadlines
• providing real-time status tracking.

That means at any point during the audit process, the client has full visibility and transparency of how they are progressing against what they’ve agreed upon.

Audit progress indicators

Some of these technologies also allow clients to see whether the auditor has received that information and concluded that it gives them what they need, or if it is still open and being considered by the auditors. That’s really powerful for clients because it can give them an indication of how well the audit is progressing on the auditor side as well as on their side.

In addition, audits are becoming much more about the use of data rather than use of reports. Businesses should proactively assess how they’ll provide auditors with structured, high-quality data from their accounting systems. This can greatly impact audit efficiency. I’d strongly recommend testing this process early by:

• checking data exports
• verifying the output
• resolving any issues with extracting data from financial ledger systems and other sources in advance.

This area is also an opportunity that can reduce the amount of information that was previously produced. Agreeing with the auditor on the question, ‘If we pull out this data, what do you not need that you used to ask for?’ can save time.

How are perceptions from within the audit industry changing?

There is a wave of audit firms that are investing far more in better technology. Many firms are still using legacy desktop software to perform the audit process. They’re using dated checklists to ensure they perform all the audit work they need to.

This checklist mentality is something that is driving that stereotype of auditors and accountants being bean-counters.

Meaningful interpretation

However, a growing number of firms are adopting cloud-based, data-driven approaches to audit. This technology automates the traditional, manual grunt work – the low-cognitive work that needs to be performed. It’s allowing people to work on more interesting and challenging areas using data analytics and visualizations to interpret financial information in a more meaningful way.

That’s also being driven by work that ICAEW has done with Inflo to embed modern technology into the ACA qualification in the UK market. This is setting an expectation at a grassroots level of more technology being used in the audit process.

Private equity growth

Another major trend in the accounting profession is the rise of private equity investment. This is driving significant growth, and technology is a key focus.

However, it’s not just PE-backed firms that are driving investment in technology and in talent. The independent firms, those that have not taken on private equity investment, are having to keep pace. Otherwise, they can lose a competitive advantage and potentially lose talent to these firms.

The talent question

There has been a greater focus on talent retention and attraction and how to create a firm and a work environment that is conducive and appealing to the modern auditor. These are the Generation Z workers who are coming into the profession at the early stages of their career.

There is a huge opportunity for growth in the accountancy profession. There aren’t, however, enough people coming into it to take advantage of that.

This is particularly the case in the U.S., where there is a significant shortage of accountants and a high percentage of CPAs nearing retirement. To help modernize the profession, firms are embracing more flexible work environments, relaxed dress codes, and hybrid working models.

Another key change is that we’re starting to break the “Big Four” mindset. That’s the idea that the four largest firms are members of some elite club and that working for a Big Four firm is much different than working for another firm. I think there’s still some of that there, but I can see that being eroded now in the profession.

How can businesses better work with their audit teams to improve the process?

One of the key areas I would recommend for clients is setting clear expectations on how you want to interact with the audit firm. Define:

• who is going to be the main contact to the client
• where the audit is going to be performed – on site or remotely
• how questions are going to be handled throughout the process
• when you want to get status updates or meetings to go through issues.

Try to take a more agile approach to the audit. Don’t wait until the very end to hear feedback, issues, or challenges that the auditors are experiencing.

Instead, establish a daily stand-up meeting with the audit team. Use it to check on what is going to be focused on today, what were the outcomes of yesterday, and what challenges they’re facing.

This will help you be close to the progression of the audit and resolve questions in a timelier way before they snowball or become inefficiently handled.

Top focus area

I would focus on the higher-risk areas first. Certain mandatory audit procedures, such as testing journal entries to assess management override of controls, are often left until late in the process.

Instead, these should be front-loaded alongside any complex accounting areas that require judgment or modeling to prepare fair values. Tackling these issues early helps prevent bottlenecks and allows for better-informed decision-making.

Dry runs

Performing dry runs can ease the pressure of busy season. Testing processes earlier in the financial year allows you to establish workflows in advance, especially when implementing new ways of extracting data.

Doing it ahead of time ensures you understand the right approach, can refine it, and even document it for future use. The same applies to complex models – getting auditors to verify them before year-end can prevent last-minute issues.

Finally, there are many ways that the audit approach can be performed nowadays. Talk to your auditor about the options available. Find out how the audit could be performed and the things that you value and you don’t value as part of the audit process. This helps to ensure the auditor understands what you want from the audit process and how to deliver against that.

What opportunities can stem from a more efficient and effective audit process?

It’s going to save your team a lot of time. Your finance team won’t have to spend hours running reports, providing information, and chasing down questions. With a more efficient process, the audit will be less demanding.

You can fit it around your day-to-day work. In the past, auditors would be on-site, taking up a huge chunk of your team’s workload. This could make it hard to focus on anything else.

Now, audits can be done remotely, more flexibly, and with far better visibility into deadlines, progress, and the status of the work. That’s going to give you a lot more confidence in hitting deadlines and eliminating any surprises coming out of the audit process late.

It will also provide a better feel for how in control you are and to what extent you are at the mercy of the auditors performing the work.

Cutting down on errors

A higher-quality audit means there’s going to be less chance of errors appearing in your financial statements. Nobody wants to have to submit adjustments or amended financial statements and deal with the impact that causes, both from financial reporting and tax purposes.

So having confidence that the numbers you’ve prepared are in fact correct and do not require adjustment creates a very strong peace of mind.

It does not cost as much for the auditor to perform their work if the client is incredibly organized. If you want to improve in this area and reduce the amount of cost and work involved, it helps to get better organized.

Getting really good at providing the information will give you some financial rewards. You can even go out and seek some new auditors who will recognize that you are a more prepared client and therefore more efficient.

Insights and outputs

All too often, I find that auditors and companies are not talking about what they value from the audit process. There are a couple of opportunities where more insights and more valuable outputs can be achieved.

That might be things that I’d refer to as macro insights. This includes comparing how an organization stacks up against relevant peers – companies in the same industry of a similar size. Another approach could involve benchmarking things like their financial KPIs to see how they compare.

There are also micro insights. These examine how you can optimise financial processes. This could include identifying transactions which are bypassing controls or other ways that the finance team can improve.