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Key Steps to Make Financial Audits More than Just a Compliance Check

Posted by Thomas Sutter, Global Solutions Centre of Excellence

The audit, typically a cumbersome, unwelcome task for the finance department, needn’t be such a burden. In fact, if done right, it presents an opportunity for process improvement, career advancement and strengthening the bottom line.

Try this exercise. Challenge one group in finance to find the errors in the books. Challenge another to create reports and tag the data. When the auditors come in, many of their questions are already answered. Plus, it presents a teachable moment for staff, both when it comes to reporting and in learning about gaps in the system and the audit process itself.

Sadly, for many the audit often becomes a tick-box exercise that adds little value to the business.

In fact, a Deloitte survey of more than 1,200 chief audit executives (CAEs) in 29 countries found that internal audit teams lacks the influence, skills and tools needed to develop critical forward-looking capabilities that boards expect, such as anticipating and responding to risk. Fewer than a third (28 percent) of CAEs said they believe internal audit has a strong impact and influence on the organisation. That’s probably not surprising considering just over half (55 percent) of CAEs said they had only basic internal audit analytical capabilities, such as spreadsheets, while 11 percent said they had no analytics at all.

For many of these organisations, the finance system is contributing to the difficulty in dealing with audits. Finance organisations with a hairball of siloed systems find themselves spending significant amounts of time reconciling data. Modern, cloud-based systems, however, can provide a unified view of data in real time. It is now possible to automate much of the audit process to flag up issues and filter information effectively.

Careful planning and preparation, coupled with a modern finance system can speed up the audit process considerably. If an auditor has a question and the finance team can quickly show them within the system that all the data is live, the report they’re looking for, the criteria, the subsidiary, and the specific transactions, it gives auditors confidence in the controls and the fact that they’re getting the right data. Give them an Excel spreadsheet and they’ll see potential issues and ask for a larger sample.

The realisation of the importance of a modern finance system is dawning on many organisations. According to analyst firm Gartner, finance departments are now embracing the cloud much faster than expected. Gartner’s survey of senior financial executives found that 36 percent of enterprises will use the cloud to support more than half of their transactional systems of record by 2020.

Further fuelling the need for more modern finance systems is that the frequency of auditing is moving towards ‘real-time,’ while the scope is expanding. Tax administrations are pushing for greater access to organisations’ financial records. Across Europe, governments are introducing standard audit tax files (SAF-T), enabling the audit of VAT filings. Governments are moving towards an approach whereby they receive sales and purchase data, audit that data and then complete the returns on behalf of businesses.

Fast-growing businesses introduce more challenges to the audit process. Organisations expanding into new markets overseas can deploy multiple local accounting systems, each with different internal controls that auditors need to document and audit. Tripling the size of the organisation over two years often means the cost of the audit triples as well. Finance technology that can scale with the business can prevent those costs rising in line with business growth. Additionally, with a global cloud ERP system that can handle multiple subsidiaries, the business can launch new offices and subsidiaries quickly and easily with financial data automatically rolling up to headquarters where staff can work directly with auditors, reducing the need to travel to other locations to deal with local staff and local systems.

A global cloud-based finance and ERP system, across the whole business will provide auditors with the insight and reassurance they require, keeping audit costs to a minimum.

The right systems and planning impact more than just the cost and complexity of the audit process. The primary compliance purpose of an audit is to check the accuracy of financial records and ensure there are no fraudulent transactions as well as legal obligations to file accurate company records and pay the correct tax.

If the compliance process is accurate and efficient then the audit is no longer just an irrelevant tick-box exercise. By pulling together accurate and real-time information the finance team and CFO can support business growth and also provide confidence in the integrity and direction of the business to external stakeholders and investors.

Ultimately, having a strong handle on the finances means that information can be used to more accurately gauge the business’ current performance, and better plan its future.

For more on strategy and finance, download the paper A Finance Director’s Guide to Auditing in High-Growth Organisations.