When I speak to clients about their audit report, I always advise them to try not to see it as a box-ticking exercise for compliance.
In reality, it’s a useful tool for understanding the financial health of your company and identifying areas for improvement.
Regardless of whether it was undertaken for statutory compliance or not, the primary goal of an audit is to ensure that your financial statements give a true and fair view of your company’s position.
However, a good auditor will go beyond just compliance, giving you insights into your operational risks, weaknesses in internal controls, and areas where you can enhance efficiency.
As such, you should treat the audit as a learning opportunity – not just a statutory requirement.
Review key areas highlighted in the auditor’s report
Once you’ve received your audit report, you should carefully review the key findings.
I always suggest clients focus on:
- Internal control deficiencies: These highlight areas where your processes may be inefficient or prone to error. If your auditor has flagged control issues, consider implementing stronger internal checks and balances.
- Risk management advice: Auditors often assess your risk profile and suggest ways to mitigate potential threats. Pay close attention to these recommendations, as they can help you avoid costly surprises down the line.
- Going concern status: If your auditor has raised any concerns about your business’s ability to continue as a going concern, you need to act swiftly to address liquidity or solvency issues.
Then, I recommend prioritising areas of concern or improvement that have been identified so you know which to tackle first.
We often find that, when examining cash flow, the audit uncovers inefficiencies that are affecting it.
Some common areas where businesses experience issues include:
- Invoicing and receivables management: If your auditor suggests you have a long collection period, it’s worth reviewing your payment terms and chasing overdue invoices more aggressively.
- Inventory management: If you’re holding too much stock, this could be tying up valuable cash. Consider adopting a ‘just-in-time’ inventory system or reviewing your supplier agreements.
- Debt management: Your auditor may recommend restructuring or refinancing debts if it’s affecting your cash flow. Look into these suggestions to ensure your debt levels remain manageable.
If you find that your audit identifies issues like these, we always suggest discussing them with your accountant or tax adviser.
Implement changes to internal processes
Many audit findings will point to inefficiencies in your internal processes. I
t’s vital that you act on these recommendations:
- Update your accounting software: If the audit revealed manual errors or inefficiencies, it might be time to upgrade to a cloud-based system that automates certain tasks, reducing the risk of mistakes and saving time.
- Segregate duties: If your auditor flagged a lack of segregation of duties in financial processes, this is a red flag for potential fraud. Implementing clear role divisions within your finance team can minimise risk.
- Improve documentation: Auditors often highlight weak documentation as a recurring issue. Ensure your team keeps thorough and clear records, particularly when it comes to expenses and financial authorisations.
Again, your accountant can help you deal with these operational issues and implement the strategies to amend the situation.
Auditors themselves are well-versed in the current legislation, and their findings might include suggestions on how to stay compliant with evolving regulations. This could involve:
- Ensuring adherence to Corporation Tax rules, VAT, or payroll compliance
- Preparing for changes to financial reporting standards or other regulatory obligations
A discussion with your auditor and your accountant can usually help you protect your processes against future compliance issues that might lead to penalties or legal challenges.
Your relationship with your auditor shouldn’t end when the audit report is delivered.
Make sure to follow up with them for further clarification on any complex issues.
Create an action plan for implementing changes
It’s easy to feel overwhelmed by a lengthy audit report, especially when it suggests numerous changes.
The best way to tackle this is to create an action plan:
- Prioritise high-risk areas: Focus on areas where non-compliance or operational inefficiencies could have the greatest impact on your business.
- Assign responsibilities: Make sure each action point has a responsible team member and a deadline.
- Set a timeline: Implement changes in stages to avoid overwhelming your team. Track progress to ensure improvements are made consistently.
Once you’ve started implementing the changes recommended by your auditor, schedule regular reviews to assess progress.
Many of the issues identified may take time to resolve, and continuous monitoring will ensure you stay on track.
You can also consider requesting a follow-up review from your auditor to ensure that your corrective measures are having the desired effect.
For help analysing and dealing with your audit findings, please get in touch with our team.