Top 10 Things to Prepare for an External Audit

The annual audit is often one of the busiest (and potentially more stressful) times that a business, and its finance team, face each year.

In this article, David Pickess, Audit Manager, offers 10 tips to prepare ahead and alleviate some of the uncertainties and pressures faced.

Tip 1: Early preparation is key

Whilst the other tips that follow will provide some specific pointers, the overriding message here is to plan for your audit as early as possible. Allowing sufficient time for each of the various tasks to be completed ahead of the audit, helps to avoid any last-minute problems, surprises or delays.

In fact, although it may sound a little premature, the conclusion of one year’s audit is often a really good point to start thinking ahead to the next year’s audit. It’s the ideal time to reflect on what’s gone well, what could be improved and what could be included for the following year’s planning routine to help everything run as smoothly as possible.

Tip 2: Consideration of external requirements

An important preparation step is to consider whether there have been any significant changes within the external regulatory environment. If so, these could have the potential to fundamentally affect your business. For example, it may be that new reporting requirements have come into force during the year which change the scope of what is required of the business.

Potential changes in exemption limits should also be carefully considered. Changes could mean that what was required of the business last year is different to what will be required of it this year.

For example, with effect from 6 April 2025, the turnover and balance sheet thresholds for micro‐entities, small and medium businesses have increased by approximately 50% and companies that move down a size category will be entitled to the accompanying reduction in reporting and audit requirements. You can find out more about Company Size Thresholds here (add link to article).

Tip 3: Changes within the business

It’s also important to consider any changes and developments that have happened within the business.

For example, new systems and controls may have been introduced or there might have been changes to personnel within key roles. These are all points that will need to be discussed with your auditor during the planning stage of their work. And allows them to work with you to assess the impact of these changes on the planned audit approach for the year.

Tip 4: Related parties

Maintaining a full and up-to-date list of related parties is vital as it’s something that’s key to your auditor during the planning stage of their work. Whilst some businesses will have relatively few details to provide, for other businesses this could be a detailed process. For example if there have been a number of director changes, or other changes where the business is part of a wider group structure.

Tip 5: Details of third parties

Maintaining up-to-date details of third parties that are relevant to the business is also an essential part of the audit planning routine. This could include details of business bankers, investment managers or holders of property deeds. It may also include details of valuers used by the business in areas such as property valuations or the valuation of defined benefit pension schemes, where relevant.

These details mean that you as a business can get all the information you need for the annual audit cycle; but also allows your auditor to make direct contact with any relevant third parties at an early stage to request the information they require too.

Similarly, it’s likely your auditor may want to know about any legal cases that the business has been involved with. Details of such cases, together with supporting paperwork and solicitor contact details, will also need to be prepared and passed to your auditor at the planning stage.

Tip 6: Determine the timetable

Audit timetables are influenced by both internal and external factors, such as business board meetings and statutory filing deadlines.

But by preparing and sharing the timetable early with all relevant parties, you can help make sure that everyone is aware of the deadlines you’re working towards, and the milestones that need to be met along the way.

This also allows your finance team to schedule the involvement of other staff and departments within the business ahead of time. Similarly, if the business is part of a wider group, and if group reporting requirements exist, then these should also be factored-in to the audit timetable.

Tip 7: Stocktake planning

If the business holds a material quantity of stock, your auditor will need to be comfortable with the stock quantities held at the year-end date.

Therefore, as part of the audit planning process, the finance team should make sure they’re aware of all locations where stocks will be held at the year-end, including any that may be off-site.

It’s not uncommon for auditors to combine their stocktake attendance with a review of fixed assets, to check the existence of such assets at the Balance Sheet date. If this is relevant to your business, then this needs to be planned for in advance, so that up-to-date and accurate fixed asset registers can be provided to the auditor ahead of their stock-take attendance.

Tip 8: Auditor liaison and audit deliverables

Close liaison with your auditor will help both parties during the planning process, and as part of this process, your auditor is likely to provide you with a detailed list of requirements.

Often referred to as “Audit Deliverables” they’ll need to be worked through so that the relevant information and explanations can be provided to your auditor ahead of their work. Whilst many of these requests will be of a relatively routine nature each year (such as the provision of key control account reconciliations, supporting summaries and access to all underlying records, etc), working closely with your auditor means you’ll be able to allocate the audit requests to the relevant staff within the business for completion – especially important if you need to call upon others in the business who for information. For example, specific staff might be needed for the auditor to access payroll records, the company’s statutory books and minutes of meetings, or other information.

This process helps clarify the respective responsibilities of both the business and the auditor too. For example, there may be wording required for disclosure within the Directors’ Report or Strategic Report that the business may need to include within their draft accounts for audit.

Tip 9: Knowing what your auditor will ask you

Whilst the previous point looks at more of the routine information that your auditor will request, it’s also useful to be aware of some of the more specific points that they’ll need so you can plan ahead for any questions.

Examples of areas to be aware of include:

• Fraud – auditing standards specifically address this area, meaning that your auditor is duty-bound to give due consideration to the risk of fraud. Part of their work will involve discussions with you at the planning stage. Often, due to the unique level of knowledge that directors have, these discussions will need their involvement. So, planning for their input in advance is useful.
• Going Concern – the auditor will need you to provide an assessment of whether or not the business is considered to be a ‘going concern’ (meaning you’ll meet financial obligations and be operating) for a period of twelve months from the date on which the audit report is signed. Once again, this assessment will often need the input of the directors of the business, so plans should be made to include them in the process.
• Accounting Policies – the auditor will need to know of any changes to the accounting policies of the business. For example, your business may have decided to change the depreciation policy it applies to fixed assets during the year.
• Accounting Estimates – similarly, the auditor will also need to assess the ways in which more significant estimates have been determined during the year. Examples here could include estimates relating to bad debt provisions, stock provisions or the estimated useful lives of the fixed assets of the business.

Tip 10: Scheduling time for subsequent audit queries

Even when you allow for the most thorough and detailed of planning procedures, there will inevitably be other points and follow-up queries that crop up once the audit is underway.

One way to help to manage this is to schedule time in for the finance team (and other key staff involved in the audit process) to deal with these whilst your audit is in progress. This might mean bringing forward certain tasks that could be completed earlier, rescheduling some less urgent tasks to a later date, or reallocating work between team members. But all of this would be with a view to creating time during the audit for your team to deal with anything that comes up so that the process can run as smoothly as possible for you.

We know how an annual audit process can add pressure to a business, especially to a finance team who are required to perform additional work at the same time as their day-to-day work commitments.

However, with the right level of preparation, you can put yourself in the best place to help the audit process to run as smoothly as possible.

For more information on business audits, audit timescales and how best to prepare your business, contact David or one of the team by calling 0330 058 6559 or email us hello@scruttonbland.co.uk