Finance Audit: Importance, Best Practices, and Challenges

In this article, discover the importance of finance audits, the challenges faced with traditional auditing methods, and how AP Automation simplifies the auditing process. Learn best practices for communicating with auditors, addressing audit findings, and ultimately reducing stress related to finance audits.

Key Takeaways

• Finance audits ensure compliance with regulations, improve transparency in the AP process, and identify fraud and errors to strengthen internal controls.
• Traditional audits are time-consuming and prone to manual errors due to reliance on physical documents and manual data entry.
• AP Automation streamlines audit preparation by providing instant access to key documents, ensuring compliance with a comprehensive audit trail, and mitigating fraud risks with internal controls.

Introduction to Finance Audits

A finance audit is an essential process that provides an objective evaluation of a company’s financial statements, ensuring accuracy, transparency, and compliance with regulatory standards. These audits typically focus on assessing the integrity of the accounts payable process, internal controls, and the overall audit trail of financial transactions. By systematically reviewing financial records, accounts payable audits identify potential discrepancies, detect fraud, and provide recommendations for improvement.

The primary goal of a finance audit is to assure stakeholders, including management, investors, and regulatory bodies, that the financial data accurately reflects the company’s financial position. In an increasingly regulated business environment, regular finance audits play a crucial role in enhancing transparency, maintaining compliance, and fostering trust with stakeholders.

Importance of Finance Audit

Finance audits are crucial for businesses as they ensure financial accuracy, transparency, and compliance with regulatory requirements. They play a significant role in building stakeholder trust and identifying areas for improvement in the accounts payable process. Here’s why finance audits are vital:

• Ensuring Regulatory Compliance:
  Finance audits help companies adhere to industry regulations, tax laws, and financial reporting standards. By ensuring that the audit trail is well-maintained and accurate, audits mitigate the risk of penalties and legal issues.
• Enhancing Financial Transparency:
  By scrutinising the AP process and financial statements, audits promote transparency and accountability. This, in turn, builds trust among investors, creditors, and other stakeholders.
• Identifying Fraud and Errors:
  Accounts payable audits can detect fraudulent activities, misstatements, or discrepancies in financial records. By identifying such issues, companies can take corrective actions to improve internal controls.
• Improving Internal Controls:
  Audits provide insights into the effectiveness of existing internal controls, helping organisations enhance their financial management practices and reduce operational risks.

Enhancing Financial Transparency

Finance audits are essential in promoting financial transparency and building stakeholder trust. Here’s how they enhance transparency:

• Clear Financial Reporting:
  Accounts payable audits verify the accuracy of financial statements, ensuring that all transactions are correctly recorded and classified. This clarity enables stakeholders to make informed decisions based on reliable financial data.
• Accurate AP Process Monitoring:
  An effective AP process is crucial for financial transparency. Audits ensure that the accounts payable function is properly managed, with invoices being processed accurately and on time. This reduces the risk of discrepancies or fraud.
• Improved Internal Controls:
  Audits evaluate the effectiveness of internal controls, highlighting weaknesses that could compromise financial transparency. By addressing these weaknesses, companies can strengthen their internal controls and improve the overall reliability of their financial data.
• Stakeholder Confidence:
  By providing an independent evaluation of the AP process and financial statements, finance audits assure stakeholders that the company’s financial health is accurately represented. This confidence attracts investors, creditors, and partners.
• Comprehensive Finance Audit Trail:
  A well-maintained audit trail is essential for transparency. AP Automation provides a comprehensive audit trail of every transaction, making it easy for auditors to trace financial activities and verify the integrity of financial statements.

In summary, finance audits enhance financial transparency by ensuring accurate financial reporting, improving internal controls, and maintaining a comprehensive audit trail.

Challenges with Traditional Finance Audit

While the conduction of finance audit may vary, depending on the size of the company, the volume of documents processed or the nature of the business, they will often encounter the same number of challenges should the company be ill-prepared.

• Time-Consuming

  A finance audit can often take a considerable amount of time to complete, made even longer when auditors only have physical documents to trawl through. Locating the files in lever arch folders, finding the relevant information, and then reviewing it can be a time-consuming exercise for all involved, time which could be spent on more valuable tasks for the business. Finance audit is often priced by the length of time it take to be completed too, so it is in the business’s best interest to have finance audit completed in a timely manner.

• Manual Entry = Human Errors

  Companies that still operate using a manual invoice processing system run a much higher risk of falling victim to avoidable human errors caused by manual data entry. Whether it be illegible handwriting, incorrect information inputted, or just the length of time it takes for individuals to process the invoices, any one of these can cause delays and make life difficult for auditors. Now, with Making Tax Digital a live UK Government initiative, reducing entry errors is even more critical to ensure that correct digital records are provided to support tax returns.

• Not Real-Time Information

  With manual invoice processing, it is very difficult to get an accurate, up-to-date overview of the AP process at any one moment in time for finance audit. With paper and digital invoices on people’s desks and desktops, auditors may find it difficult to achieve a clear view of the outstanding liabilities across the entire AP process. As a result, accruals can be hard to account for, invoices’ status may not be easily determined, and the reasons why they may not be paid, part-paid, or in dispute may not be recorded.

• Difficult to Detect Fraud

  Accounts payable departments are vulnerable to fraud due to the large volume of transactions they deal with on a regular basis. Without proper controls in place, employees are free to make any changes they wish to the information on the paper files or approve invoices by themselves.

  Whilst the majority of employees will work in good faith, there is always the risk of rogue employees who will look to benefit themselves at the expense of the company. Should any unusual activity appear during a finance audit, it will be difficult to identify where the inappropriate activity transpired, and the company will be held accountable for it.

How AP Automation Can Revolutionise Your Next Finance Audit

The traditional way of conducting audits can be a pain for all parties involved. Accounts payable teams are left stressed as they rush to get everything in order and auditors are left frustrated by the lack of control in place. However, it doesn’t have to be this way anymore. By automating your AP process, you can streamline the entire process, bringing benefits to both your own staff as well as the auditors.

With an automated accounts payable audit system, invoices can be processed within minutes of arriving, no matter how they have been designed or how they’ve been sent. They can be either emailed or scanned directly into the system where their data will then be extracted and sent to an automated workflow for coding and approval or purchase order matching. Duplicates are eliminated, access is controlled, and all documents are stored in a single location. Invoices can then be instantly retrieved by authorised users at any time.

Not only does AP automation simplify the day-to-day lives of your accounts payable team and vendors, but it will also benefit your company hugely when faced with a finance audit.

1. Preparation

   AP Automation will ensure you are ready and armed with your key information before the finance audit begins. Panicking over getting your affairs in order before the auditors arrive will be a thing of the past as all the relevant files you need will be readily available to you at the touch of a button, complete with the entire document history.

2. Streamline Regulation Compliance

   No matter what industry a company works in, or the size of its operation, they will still need to adhere to a set of policies and procedures, both internally and externally. Companies will be required to show in a clear and transparent manner just how exactly they meet these requirements. Comprehensive AP Automation software is designed to provide an audit trail of every document it holds in the system, tracking each change made. This reduces errors and ensures compliance with tax laws, policies, and industry regulations, which in turn leads to easier accounts payable audits.

3. Instant Access

   While overseeing an accounts payable audit, auditors may request additional information based on the documents they’re reviewing. When was this new supplier added? Why was this amount paid significantly larger than previous amounts? Who approved this? In the past, this may have caused a scramble amongst the finance team as they search for the supporting documentation. However, with AP Automation, authorised users can access information quickly and easily, simply by searching for it in the system.

   Auditors can be given controlled access to the AP system, only allowing them access to the files they need. This saves them from having to review unnecessary files and ensures the company doesn’t share confidential information. AP Automation will often be accessible across a range of devices such as smartphones, laptops, or tablets, meaning you can process and approve your invoices wherever you are. Hosting everything online will also reduce your company’s reliance on paper, freeing up space in your office.

4. Improved Visibility & Control

   While a paper-based finance department may have invoices left on desks for days or weeks on end before being processed, AP Automation ensures invoices are uploaded and processed straightaway. This allows auditors complete and instant visibility into the finance records and pipeline. This increased visibility has proven to drive accountability, accuracy, and provide greater control over the accounts payable process.

   AP Automation also generates real-time reports for each stage of the accounts payable process, giving users fast, clear, and accurate information, allowing them to answer queries quickly and easily.

5. Eliminates The Risk of Lost Documents

   No longer will you need to spend hours of your week searching for documents that have been lost or misplaced. With AP Automation, you just need to search for the document you want, and it will appear instantly, along with key information such as who accessed it last and whether any changes have been made to the original. An auditor’s dream!

6. Mitigates The Risk of Fraud

   With AP Automation, a number of internal controls can be implemented in order to reduce fraud. These include segregation of duties, dual approvals, and two-factor authentication. This can help reduce both employee fraud and supplier fraud.

   Now that every movement of a document is tracked and recorded, employees will think twice about attempting something they shouldn’t. Should any fraudulent activity be detected during an accounts payable audit, AP Automation ensures that the source of the issue can be found quickly and resolved efficiently. Segregation of duties or dual approvals will ensure that the invoice approver won’t be the same as the payment approver, a common source of fraud. Two-factor authentication adds an extra layer of security for the company, with the approver receiving a text message with a code to approve the invoice.

7. Centralised System

   When companies receive several invoices from different suppliers or subcontractors, all using different methods of sending their invoices, things can get sloppy. However, with AP Automation, everyone is accessing the same portal and using the same criteria to submit their invoices. This ensures it is far easier to track where they come from, which is useful for auditors.

8. Time & Cost Savings

   Considering many auditors charge on an hourly basis, companies will want their finance audit to be completed as soon as possible. However, without proper control of your documentation, this will be difficult.

   AP Automation will undoubtedly speed up the overall auditing process, as all documents will already be on hand, ready to be reviewed, eliminating the needless hours spent rummaging through paper documents.

9. Eliminates Duplicates

   Duplicates are the bane of any AP team member’s life. Manually processed invoices could take a long time to process. While they are in the queue to be processed, the supplier may get impatient and resend the same invoice, leaving your AP team with two invoices to process. This is unnecessary work that can easily be avoided.

   With AP Automation, the system will instantly detect duplicates and eliminate them from the working queue of your team.

Best Practices During a Finance Audit

Following best practices during a finance audit ensures a smooth and efficient process, minimising stress for both auditors and the finance team.

Effective Communication with Auditors

Maintaining open and clear communication with auditors is crucial during a finance audit. Here’s how to ensure effective communication:

• Designate a Point of Contact:
  Appoint a primary contact person within the finance team to coordinate with auditors. This individual should be knowledgeable about the AP process and able to provide auditors with the necessary information.
• Provide Regular Updates:
  Keep auditors informed about any significant changes in the accounts payable process, internal controls, or financial transactions. Regular updates help auditors understand the business environment better.
• Be Transparent and Honest:
  If discrepancies or errors are identified during the accounts payable audit, be honest about them. Work with auditors to resolve the issues and provide any supporting documentation required.
• Answer Queries Promptly:
  Respond to auditor queries promptly and accurately. Delayed or incomplete responses can lead to unnecessary audit findings.
• Share Audit Trail Reports:
  Provide auditors with comprehensive audit trail reports from your AP Automation system

These reports give auditors a detailed history of financial transactions and approvals.

Addressing Finance Audit Findings

Addressing audit findings promptly and effectively is essential for maintaining stakeholder trust and improving internal controls. Here’s how to handle them:

• Understand the Findings:
  Review the auditor’s report carefully to understand each finding. Clarify any ambiguities with the auditors to ensure you fully comprehend their concerns.
• Develop an Action Plan:
  Create a detailed action plan to address each audit finding. Assign responsibilities and deadlines for implementing corrective actions.
• Implement Corrective Actions:
  Take immediate steps to resolve the identified issues. This could involve updating internal controls, improving documentation practices, or enhancing compliance procedures.
• Monitor Progress:
  Regularly monitor the progress of your action plan. Ensure that corrective actions are completed on time and that new processes are effective.
• Follow-Up Audit:
  Conduct a follow-up audit to verify that the corrective actions have resolved the findings. This demonstrates to stakeholders that you are committed to continuous improvement.

By following these best practices, companies can streamline the finance audit process, enhance financial transparency, and maintain compliance with regulatory standards.

Time to Reduce Stress Related to Finance Audit

Audits can be painful, time-consuming, and can expose serious failures in the business if they haven’t prepared well. AP Automation will revolutionise the way you manage invoices and ensure you’re fully equipped to face anything auditors throw at you! With instant access to key documentation, clear visibility of all your financial records, a complete history of files, and up-to-date, real-time information of all invoices you hold, AP Automation will help you ace your next finance audit.