Audit season is upon us. If that sends shivers down your spine or puts a big ball of dread in the pit of your stomach, you’re not alone.
An audit puts your accounting team to the test just as it’s time to hunker down and close out the year. There are a lot of moving parts, tight deadlines, and sometimes, nasty surprises.
I’ve been through the process many times, both as a Big 4 auditor and then on the other side at a fast-growing SaaS company, from early private stages all the way through IPO.
While external audits are never easy, I do believe that with the necessary planning and preparation, you can face them head-on and with confidence.
Based on my experience as a controller and now as a finance executive, here are some tried-and-true tips that will make your next audit as smooth as possible.
1. Do not delay the audit, and if you can, request a pre-audit
It’s human nature to procrastinate on things that are hard, and audits certainly fall into that category. But delaying your audit will only make it much, much harder.
I recommend that you do the opposite – run towards the audit and tackle it as early as possible.
If you want to be even more proactive, talk to your CFO about requesting a pre-audit, an amazing concept that many finance professionals still aren’t familiar with.
Kicking off a pre-audit in November means you can do most of the heavy lifting of the audit – pulling information, preparing the sampling, and organizing documentation already during Q4 before the year ends.
By the time January or February rolls around, you'll be able to focus on the preparation of financial statements, roll-forward procedures, and some final samplings.
There are a multitude of benefits to a pre-audit:
- It distributes your workload more evenly throughout the year. The end of the year is such a crunch no matter what. Don’t make it worse by adding a full audit workload to that critical period of time.
- It gets the work done when it’s fresh in your mind. Kicking the audit down the road makes it much harder to answer auditors’ questions and drill down. How can you possibly remember all the details about what happened more than a year ago?
- It gives you visibility into your numbers. Delaying your audit and yearly close forces you to work with outdated data. How can you make decisions in 2023 if you’re still working with 2022 financial statements?
Even if a pre-audit isn’t in the cards for you, my advice remains the same: do not stall the audit. Get it done by March. Move on with your life.
2. Schedule an early kick-off meeting with your auditors to get aligned
As early as October or November, before the audit begins, schedule a kick-off meeting with your auditors to discuss any major changes that have happened in your company, trends of the business, or any external changes that could impact your accounting and reporting requirements.
- Has your team made any changes to its accounting policies?
- Are there any new accounting standards that your team needs to know about?
- Did your company start offering an on-premise solution in addition to SaaS?
- Did you grant options to employees at a discount price?
- Did you make significant changes to the roles and responsibilities of teams that may impact their P&L classification?
Different scenarios require different accounting treatments, and you want to align and set expectations with your auditors as early as possible to avoid any surprises during the audit.
Share your balance sheet, review the P&L, brief your auditors about all of your accounts, inform them of any new issues that need to be addressed, and get their feedback.
As Murphy’s Law would have it, the hardest questions and nastiest surprises often come up at the end of an audit.
Save yourself from the nightmare scenario where you’re one week away from the PR and the auditor suddenly discovers that your numbers for the entire year should have been treated differently from an accounting perspective.
3. Get your books in order, with an eye on bank reconciliations
In anticipation of your upcoming audit, now would be a really good time to get your books in order with a special focus on the following areas:
- Record journal entries in as much detail as possible so that you’re able to provide quick and precise answers without the hassle of investigating in the midst of an audit
- Keep a list of your bank accounts and update it throughout the year. It can be easy to forget about smaller accounts or ones you have in a different location or currency
- Cross-check reconciliations across all of your major accounts and make sure that the bank statement is the same as what’s on your balance sheet. It may sound obvious, but it’s not always a given!
- Try to minimize the number of unknown transactions that are recorded against “general” on your deposited account. We all get customer payments we can’t recognize, but make an effort to work with the bank to identify the customer and reconcile it against the right account. You don’t want to end up with a black hole of unreconciled transactions at the end of the year.
- At least a month prior to your audit, reach out to your bank contacts and let them know that you’ll need your bank confirmations. If you classify PSP balances as cash, be prepared to do the same thing there. Getting confirmations can take a while, and it’s the last thing that you want to hold up your audit.
These tips are best practices to implement all year long, but they’re definitely not a given for many finance teams, especially ones in private companies that have just started to scale.
4. Prepare as much documentation as you can in advance
Getting your documentation ducks in a row in advance eases your stress and workload, so you don’t need to scramble at the last minute, and ensures that the audit doesn’t get stuck or delayed due to a bureaucratic hold-up, which nobody wants.
Here’s some specific advice:
- Prepare as many working papers as you can in advance: You don’t have to wait for the final numbers for things that don’t materially change, such as the rent deposits paper or a liabilities breakdown. Get the first nine months ready, and then update per any changes that take place during the last three months of the year.
- Prepare your flux analysis in advance and be prepared to answer questions about trends and changes in your P&L and balance sheets. Having that prepared in advance not only shows that you have your stuff together, which really builds trust, but it’s a very important and final part of the audit that’s amazing to have done in advance and without stress.
5. Get key stakeholders aligned on a timeline
Whether it’s HR, FP&A, billing and payments teams, information systems, or revenue ops, give relevant stakeholders in your company a heads-up that the audit and yearly close are coming.
Make sure they’re aligned on the timeline so that they are ready to provide any necessary documentation or support in a timely manner when you need them.
The same is true of any external accounting firms you’re working with. Start with the final date of your PR, and reverse-engineer from there when they’ll need to deliver finalized numbers.
Stay on top of dates, communicate them to everyone who needs to know, do your best to give everyone advance notice, and ask for understanding when an unforeseen last-minute request comes in.
6. Create a collaborative checklist for your year-end close and audit
Whether it’s Asana, monday.com, Trello, or a month-close dedicated tool, use a collaborative tool to create both an end-of-year checklist and an audit-specific checklist for everyone on your team to turn to and update.
Add your tasks there, whether it’s reconciliations you need to handle or manual journal entries to be recorded, and have clearly assigned owners and deadlines.
Having one centralized collaborative checklist provides visibility to everyone on the team, from CFO to bookkeeper, on where things stand and ensures that nothing falls through the cracks.
As your operations scale, it’s amazing to have a task management tool that’s integrated with your ERP, which gives you control over planning and execution in one place.
Many people don’t use any audit checklist at all, so start with something simple.
7. Store your documents in one centralized place
Create one shared folder for your team and then a separate folder for your auditing team where you store all documentation and working papers that they’ll need.
Rather than sending documents as email attachments, which can be easy to miss and difficult to find in an old chain, a shared drive is a much more organized way to work.
It puts the ball back in the auditors’ court, giving them the confidence that they have everything they need to move forward with their work.
Anything that’s sensitive, such as payroll, board resolutions, or bonus provisions, should either be in a password-protected folder or emailed to the very specific auditors who work on those accounts.
8. Manage the relationship with your auditor
The relationship you have with your auditor is unique and unlike any other professional (or personal) relationship you’ll have.
Building mutual trust and understanding is incredibly important.
Yes, they’re there to audit you, but they don’t want things to drag on any longer than you do.
Being organized, proactively communicating, and getting documents prepared in advance isn’t just to save yourself the headache of last-minute scrambling; it also instills confidence in the auditor that your processes are sound.
Don’t forget – no company is perfect, and there will always be errors in your finances.
But once there’s mutual trust between you and your auditor, you can have an open conversation about whether the issues are material or immaterial and whether they’re a one-time incident or indicative of something more fundamental.
9. If possible, have the audit happen on-premise
To the end of building a great working relationship with your auditors, I recommend that audits happen on-premise rather than from afar whenever possible.
It changes the whole dynamic.
You can work together in the same space as one team, providing visibility into how your team runs its operations and giving the auditors the space to ask questions and look under the hood.
Whether you support remote or hybrid work or not as a matter of practice, face-to-face time with your auditors is really important.
10. Year-round, automate anything that you can automate
In terms of systems and processes you can implement year-round to make your audits easier, my tip is: automate.
Whether it’s reconciliation, expense reimbursement, or payroll, integrate every possible system or process you have with your ERP and automate everything that you can automate.
It’s my motto, and seriously, it’ll change your life.
Not only does automation dramatically reduce the incidence of errors and mistakes, but it will also free up your team’s time to step away from Excel and spend time on work that really matters.
Finance work should be more than manual data entry, and automation can make that a reality while also making your teams more efficient and maybe even leaner.
Final thoughts
Preparing for an audit can definitely be daunting, especially if it’s your first time.
But with a bit of proactive planning, strategy, and relationship-building, you can transform what many experience to be a crisis into a structured, orderly process.
The best part is that by implementing these tips, you’re not just setting yourself up for a smoother audit, but you’re also setting the stage for year-round success.
