While many business leaders probably hoped they could escape having to conduct their annual financial statement audits during this pandemic, most are resigning themselves to the fact if COVID-19 stays with us at least through 2021 — like most health experts agree it will — then virtually every public, as well as loan- or investor-backed, company will need to undergo at least one financial statement audit under these less-than-favorable conditions.
Even in the best of times, audit preparation is a significant source of stress for business leaders. But disruption to normal business activities and processes from the COVID-19 pandemic has for many however made the prospect of an audit particularly unpleasant. It need not be that way, however. Of course, business leaders should take their audits very seriously. But with proper planning, financial statement audits — even during this pandemic — can actually go off relatively smoothly.
Whether we are the firm auditing a company, or if we are the professionals helping with audit preparation, BPM’s Audit team has already been through numerous financial statement audits since the start of COVID-19, and even in that short time we have managed to refine our process and identify what actions by the company and auditor can help ensure a successful audit. Drawing on that data, here are our top five tips for companies to prepare for their financial statement audits during COVID-19.
1. Set up channels for communication.
The top thing businesses want out of an audit is for it to be over as soon possible, so they can get back to regularly scheduled activities. But to do that, the audited business must resolve to be responsive to auditors’ requests for actions required of them to complete the audit. While getting in touch with the right person is easy enough during an on-site audit, when everything is virtual, it can be a lot harder.
The most important thing businesses can do to avoid dragging down the audit process is establishing regular meeting times — ideally two or three times per week — for the full internal accounting team, as well as the key personnel from the firm performing the audit, to connect and update one another. Remote working can have a tendency to isolate individuals from the full picture; this step will help ensure that everyone is on the same page.
Another tactic we have found useful is to make a contact list during the first meeting, which includes the full contact information of everyone involved in the audit. This ensures no one can cite their inability to reach someone else as a reason for any delays, which in turn creates a level of accountability that keeps the process moving forward.
2. Leverage technology wherever possible.
While the pandemic has, in most cases, made it impossible for firms to visually inspect relevant documents or assets in person, they must still have a reliable way of confirming the authenticity and veracity of the information contained in the business’s financial statements. This is where modern communications technologies like Zoom come into play. Had this pandemic happened 10 or 15 years ago, auditors would have been in quite a jam. But today’s scalable, reliable video communication tools can serve as a perfectly adequate replacement for in-person reviews in the vast majority of cases. Learn more about BPM’s virtual audit capabilities.
After a robust video calling solution, the next most important thing for businesses to have is a document cloud solution for digitally-storing scanned documents, photographs, videos, recordings of meetings, etc. so they can be easily accessed by auditors. Organizations that have not already invested in these tools should not only purchase and configure them, but also train employees to use them prior to any audits. This will avoid any “learning curves” associated with these collaboration tools from impeding progress of the audit.
3. Give your auditors access to digital files.
Standard means of business communication — email or phone calls — will likely prove inefficient during a virtual audit, due the sheer number and variety of documents required by auditors. An automated solution will work much better here. Businesses should make use of a centralized portal or similar service (i.e. Dropbox or an internal secure port such as SharePoint) that allows auditors to submit requests for documents or information, automatically funnels the request and alerts to the right people, and allows users to upload the requested data, all within the same interface. The service should also track the status of all requests and remind relevant individuals of any outstanding requests. Sure, all that could be probably accomplished manually via emails and phone calls, but automating it saves a good deal of time that can then be used more productively.
4. Revise your internal controls for the pandemic.
Internal controls — i.e., all the processes, policies and procedures that are designed to keep a business’s financial and accounting information secure and accurate — are a key area of attention for auditors of financial statements. Most organizations undergoing an audit will already have some set of internal controls in place. However, these internal controls may not have been updated since March, when the coronavirus basically overnight put millions of workers in indefinite work-from-home situations.
It should be self-evident that controls designed for workers in office settings may no longer be effective when everyone is working on their laptops from home. Internal controls for everything from how reimbursements are handled to how information is restricted to prevent insider trading and monitoring bank accounts to prevent fraud may need to be updated. To ensure continued accuracy of financial statements (and to pass this aspect of the audit), businesses must review current procedures and, where necessary, create effective replacements in advance of the audit.
5. Adjust budgets to reflect current economic conditions.
Everyone from investors to regulators to lenders will want to see the organization’s current budget, and as such these figures must still be realistic. With nearly every business’s revenue predictions significantly impacted by the pandemic economy, you can be sure financial statement auditors are going to examine budgets with particular scrutiny.
That is why prior to the start of any audits, the internal accounting team should carefully create a new budget that incorporates any expected changes to cash flow, broader economic forecasts, relevant market trends, etc. Moreover, with economic uncertainty abiding, businesses are increasingly having to work from assumptions that may turn out to be wrong. In light of this fact, the way businesses will pass their financial statement audits is by documenting process and the assumptions that led to the budget figures as reported.
Pandemic Audit Preparation Services and More From BPM
At BPM, we know that business leaders are more anxious than ever about audits. That is why our audit preparation services have been thoroughly updated to meet the needs of organizations undergoing audits during this pandemic. Having already worked with numerous clients during this pandemic to prepare for virtual audits, we offer a streamlined experience that minimizes any additional disruption to your business. Armed with an in-depth knowledge of your business, our experienced assurance professionals provide the highest level of service within the tightest deadlines to ensure your business is as prepared as possible for financial statement audits.
To learn more about how BPM can help your business prepare for financial statement or other types of audits during COVID-19, contact us.
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