HOW TO SAVE ON AUDIT FEES: FINANCIAL AUDIT PREPARATION CHECKLIST

An audit can protect business stakeholders from the risk of fraudulent practices and therefore stakeholders will often require audits to be done annually. If a business doesn’t have a choice whether to have an audit done or not, they can still control the expense to a certain extent by planning for the audit and supporting the auditors as best as they can.

The main purpose of a financial audit is to ensure that a business’ accounting information accurately reflects its financial position. By trying to put yourself in the shoes of an auditor and attempting to anticipate what information they might require to complete their audit procedures, you can prepare a significant amount of the information needed for an audit in advance. Thorough preparation will reduce pressure on the side of both the auditors and the business during the time of the audit and can potentially reduce audit fees.

A business owner and/or management can increase the efficiency and reduce the costs of an audit by following the proposed steps below.

Preparation before the start of the audit

Designate an audit liaison person

Designate one person with experience as well as good communication and organisational skills as the auditors’ main contact with the business. Ideally all communication between the auditors and the business should happen through this person first.

First meeting with auditors

Make a list of items to discuss with the auditors and arrange a preliminary/planning meeting a while before the audit. Some of the points that can be included for discussion are the following:

  • the purpose and scope of the audit
  • information required by auditors
  • who the audit liaison person will be
  • how communication between the auditors and the audit liaison person and ultimately the employees will be handled
  • the expected finish date of the audit
  • a budget for the audit broken down in terms of the time the auditors expect to work on the audit and the resulting costs to the business (for a first audit with a new auditor it might be difficult to budget for audit hours as the auditors will probably not have much background information about the business or experience with the client)

Financial records and other information

Obtain a list of the reports, documents and other information from the auditors that they will require to conduct the audit. Generally auditors will require the following documents where relevant:

  • Income statement
  • Balance sheet
  • Cash flow statement
  • Budget(s)
  • Trial balance
  • General ledger
  • Debtors ledger, age analysis and reconciliations
  • Inventory reconciliations and stock counting records
  • Creditors ledger, age analysis and reconciliations
  • Bank statements and bank reconciliations (including petty cash)
  • Tax related documentation e.g. tax returns submitted and paid during the year being audited
  • Major contracts e.g. sales contracts, purchase agreements, leases, insurance policies
  • Minutes of meetings where important decisions were taken which had or can have a material effect on the business
  • Policy and procedure manuals
  • Internal audit reports
  • Any other information which might have a material effect on the financial health of the businessCollect as many of the above items in advance as you can, review them thoroughly and try to anticipate what questions the records may provoke from the auditors’ side.

During the audit

  • Communicate with the auditors regularly.
  • Respond to auditor queries as soon as possible with accurate information.

After the audit

Audit management report

Obtain an audit management report from the auditors setting out suggested solutions and improvements in the way business is conducted. Implementing as many of these suggestions as possible before the next audit can reduce audit fees for the next audit.

Post-audit evaluation

Identify weaknesses and time-wasters experienced during this audit and consider possible solutions and different approaches to improve the next audit.

As can be seen from the above, there is quite a bit of planning and preparation that can be done in advance to make an audit less disruptive for a business and its employees and at the same time also pay off in reduced audit fees.

Reference List:

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

HOW TO SAVE ON AUDIT FEES: FINANCIAL AUDIT PREPARATION CHECKLIST

A1_bAn audit can protect business stakeholders from the risk of fraudulent practices and therefore stakeholders will often require audits to be done annually. If a business doesn’t have a choice whether to have an audit done or not, they can still control the expense to a certain extent by planning for the audit and supporting the auditors as best as they can.

The main purpose of a financial audit is to ensure that a business’ accounting information accurately reflects its financial position. By trying to put yourself in the shoes of an auditor and attempting to anticipate what information they might require to complete their audit procedures, you can prepare a significant amount of the information needed for an audit in advance. Thorough preparation will reduce pressure on the side of both the auditors and the business during the time of the audit and can potentially reduce audit fees.

A business owner and/or management can increase the efficiency and reduce the costs of an audit by following the proposed steps below.

1. Preparation before the start of the audit

  • Designate an audit liaison person

Designate one person with experience as well as good communication and organisational skills as the auditors’ main contact with the business. Ideally all communication between the auditors and the business should happen through this person first.

  •  First meeting with auditors

Make a list of items to discuss with the auditors and arrange a preliminary/planning meeting a while before the audit. Some of the points that can be included for discussion are the following:

  •  the purpose and scope of the audit
  •  information required by auditors
  •  who the audit liaison person will be
  •  how communication between the auditors and the audit liaison person and ultimately the employees will be handled
  •  the expected finish date of the audit
  •  a budget for the audit broken down in terms of the time the auditors expect to work on the audit and the resulting costs to the business (for a first audit with a new auditor it might be difficult to budget for audit hours as the auditors will probably not have much background information about the business or experience with the client)
  • Financial records and other information

Obtain a list of the reports, documents and other information from the auditors that they will require to conduct the audit. Generally auditors will require the following documents where relevant:

  •  Income statement
  • Balance sheet
  •  Cash flow statement
  •  Budget(s)
  •  Trial balance
  • General ledger
  •  Debtors ledger, age analysis and reconciliations
  •  Inventory reconciliations and stock counting records
  •  Creditors ledger, age analysis and reconciliation
  •  Bank statements and bank reconciliations (including petty cash)
  •  Tax related documentation e.g. tax returns submitted and paid during the year being audited
  •  Major contracts e.g. sales contracts, purchase agreements, leases, insurance policies
  •  Minutes of meetings where important decisions were taken which had or can have a material effect on the business
  •  Policy and procedure manuals
  •  Internal audit reports
  •  Any other information which might have a material effect on the financial health of the business

Collect as many of the above items in advance as you can, review them thoroughly and try to anticipate what questions the records may provoke from the auditors’ side.

2. During the audit

  •  Communicate with the auditors regularly.
  •  Respond to auditor queries as soon as possible with accurate information.

3. After the audit

  •  Audit management report

Obtain an audit management report from the auditors setting out suggested solutions and improvements in the way business is conducted. Implementing as many of these suggestions as possible before the next audit can reduce audit fees for the next audit.

  •  Post-audit evaluation

Identify weaknesses and time-wasters experienced during this audit and consider possible solutions and different approaches to improve the next audit.

As can be seen from the above, there is quite a bit of planning and preparation that can be done in advance to make an audit less disruptive for a business and its employees and at the same time also pay off in reduced audit fees.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Reference List

 

 

HOW TO SAVE ON AUDIT FEES: FINANCIAL AUDIT PREPARATION CHECKLIST

A3_bAn audit can protect business stakeholders from the risk of fraudulent practices and therefore stakeholders will often require audits to be done annually. If a business doesn’t have a choice whether to have an audit done or not, they can still control the expense to a certain extent by planning for the audit and supporting the auditors as best as they can.

The main purpose of a financial audit is to ensure that a business’ accounting information accurately reflects its financial position. By trying to put yourself in the shoes of an auditor and attempting to anticipate what information they might require to complete their audit procedures, you can prepare a significant amount of the information needed for an audit in advance. Thorough preparation will reduce pressure on the side of both the auditors and the business during the time of the audit and can potentially reduce audit fees.

A business owner and/or management can increase the efficiency and reduce the costs of an audit by following the proposed steps below.

i)   Preparation before the start of the audit

  • Designate an audit liaison personDesignate one person with experience as well as good communication and organisational skills as the auditors’ main contact with the business. Ideally all communication between the auditors and the business should happen through this person first.
  • First meeting with auditorsMake a list of items to discuss with the auditors and arrange a preliminary/planning meeting a while before the audit. Some of the points that can be included for discussion are the following:
  • the purpose and scope of the audit
  • information required by auditors
  • who the audit liaison person will be
  • how communication between the auditors and the audit liaison person and ultimately the employees will be handled
  • the expected finish date of the audit
  • a budget for the audit broken down in terms of the time the auditors expect to work on the audit and the resulting costs to the business (for a first audit with a new auditor it might be difficult to budget for audit hours as the auditors will probably not have much background information about the business or experience with the client)
  • Financial records and other informationObtain a list of the reports, documents and other information from the auditors that they will require to conduct the audit. Generally auditors will require the following documents where relevant:
  • Income statement
  • Balance sheet
  • Cash flow statement
  • Budget(s)
  • Trial balance
  • General ledger
  • Debtors ledger, age analysis and reconciliations
  • Inventory reconciliations and stock counting records
  • Creditors ledger, age analysis and reconciliations
  • Bank statements and bank reconciliations (including petty cash)
  • Tax related documentation e.g. tax returns submitted and paid during the year being audited
  • Major contracts e.g. sales contracts, purchase agreements, leases, insurance policies
  • Minutes of meetings where important decisions were taken which had or can have a material effect on the business
  • Policy and procedure manuals
  • Internal audit reports
  • Any other information which might have a material effect on the financial health of the business

Collect as many of the above items in advance as you can, review them thoroughly and try to anticipate what questions the records may provoke from the auditors’ side.

ii)  During the audit

  • Communicate with the auditors regularly.
  • Respond to auditor queries as soon as possible with accurate information.

iii)  After the audit

  • Audit management reportObtain an audit management report from the auditors setting out suggested solutions and improvements in the way business is conducted. Implementing as many of these suggestions as possible before the next audit can reduce audit fees for the next audit.
  • Post-audit evaluationIdentify weaknesses and time-wasters experienced during this audit and consider possible solutions and different approaches to improve the next audit.

As can be seen from the above, there is quite a bit of planning and preparation that can be done in advance to make an audit less disruptive for a business and its employees and at the same time also pay off in reduced audit fees.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

Reference List:

BUDGETS: ARE THEY WORTH THE EFFORT?

A3_bA lot of small businesses are managed by the owner, especially in the early years of a business’s existence. As the owner is intimately involved in the day to day operations of the business, it is easy to keep control of expenses. As a business grows, however, it may become necessary to appoint employees to assist the owner in running the business.

It is inevitable that a time will come where the owner will have to delegate certain financial powers to employees and trust them to spend the business’s money wisely. This is where a budget and the budgeting process can be of immense value.

To put it simply, a budget is a financial plan for a certain period in the future based on a combination of the current financial position and a projection of expected income and expenses for said period. Combining a business’s income, expenses and financial goals into one overall plan will give a clear picture of where the business is at in financial terms and how to proceed to reach those goals.

Drawing up a budget requires that the owner and/or management think about goals for the business and how to finance them. If there is more than one goal, the goals will have to be prioritised to determine which goal(s) the focus will be on for the period of the budget.A thorough budget should ensure that the business have sufficient capital available when needed for large expenditure items like replacing expensive equipment or taking on new business ventures. Including the financial implications of future growth and expansion in the budget will ensure that the business has capital on hand to allow it to make quick decisions about opportunities for expanding operations.

Budgeting can help you to determine in advance when you will need money and how much, thus preventing crises due to a shortage of funds. It is especially important for businesses with seasonal business cycles to have a safety net for the months when business will be slow.

A budget acts as a guide to help employees understand what the owner’s priorities for the business are. Typically a budget will set targets for expenses and income for each department or cost centre. It is, however, important that the targets are realistic and achievable, and that each manager knows what the owner’s expectations are for the period of the budget.

During the process of drawing up a budget each expense item is put under the microscope. It is the ideal opportunity to determine which expenses are essential and which ones can be eliminated.

A budget can assist management in controlling expenditure by establishing boundaries in order to eliminate spending that is not in line with the business’s plans for the future. Limiting spending on expenses which are not part of the plan ensures that money is allocated to the important areas.

Using a budget enables the owner and management to measure their actual progress and performance against the budget. If they see that they are deviating from budgeted figures they can take appropriate action or, if the budget was unrealistic, the budget might have to be adjusted. A budget is a flexible tool and needs to be adjusted if it does not work or if the circumstances on which the budget is based, changes.

As market conditions, technology and employment requirements change all the time, a budget will have to be reviewed regularly to be of any real value.

Knowledge is power and drawing up a budget will give the owner detailed knowledge of the current position, potential destinations and possible ways to finance the journey from where the business is now to where it can go. To answer the question posed in the heading of this article, whether budgets are worth the effort needed to draw them up, the answer would be a resounding “Yes”!

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

Reference List:

 

SARS VAT REVIEWS AND AUDITS

A2BIt has become a common occurrence for vendors to receive a notice for a VAT review from SARS, which requires the vendor to submit supporting documentation in respect of a specific VAT201 return within 21 days. If the vendor fails to submit the supporting documentation, SARS may issue an additional assessment, disallowing the full value of the input tax claimed for that period. The vendor then needs to lodge an objection against this additional assessment and submit the necessary supporting documentation to substantiate the input tax claimed.

When a VAT return is submitted, that return is measured against certain pre-set risk factors on the computerised system of SARS. If certain parameters according to this system are exceeded, a review letter will be issued automatically by the system to the particular VAT vendor. No historical profile is maintained per vendor, and there is no limit on the number of review letters that can be issued. SARS can issue a review letter for each VAT period, even for periods where the vendor had made a payment to SARS.

During December 2011 SARS issued a number of limited scope audit engagement letters to various large companies, more specifically companies in the construction industry. The information requested was to be submitted within 21 days from the date of the engagement letters, which were issued between 12 and 20 December 2011. Many of the companies had already closed for the holidays, and had limited or no staff available.  Unfortunately the legislation provides no relief in this regard, except that the notice period should be reasonable. The engagement letters focused in particular on:

  • the VAT treatment of indemnity payments received;
  • bad debts recovered;
  • creditors older than 12 months on which an input tax deduction was claimed;
  • the sale of fixed assets;
  • input tax claimed on deductions relating to “motor car” and “entertainment” expenses; and
  • input tax claimed on supplies that are defined as “financial services”.

Regardless of the care taken by vendors to ensure the correct treatment of VAT claims, errors may still occur. Basic errors made by vendors include the claim of input tax deduction on the use of a rental vehicle for business trips, if that vehicle is a “motor car” as defined.  Year-end functions and staff refreshments are defined as “entertainment”, and no input tax deductions may be claimed. It is only when these supplies are consumed or used to make taxable supplies, that a valid input tax deduction may be claimed.

Amongst others, SARS focuses on the correct VAT treatment of the following during the performance of an audit:

  • validity of VAT invoices issued and received;
  • zero rated sales;
  • employee benefits as defined in the Seventh Schedule of the Income Tax Act;
  • insurance claims received; and
  • sale of capital goods.

It is very important that the staff responsible for the keeping of the accounting records should be adequately trained and informed in this regard, and sufficient controls should be in place to avoid these errors.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.