Preparing for an audit takes a lot of advance planning, which should ideally start six months to a year ahead of your financial year end. A successful statutory audit also demonstrates strong financial governance, ensuring your charity maintains the public trust that is essential to its reputation and operations. So, how do you prepare for an audit?
7 ways to prepare
To help make the process run as efficiently as possible, we’re sharing 7 ways your charity or non-profit can prepare for a statutory audit.
1. Develop a standard operating procedure (SOP) for year end
Develop a detailed standard operating procedure (SOP) or checklist covering all tasks required for the year end close. This document should be prepared well in advance and treated as a living resource that can be modified to reflect your charity’s evolving needs. Having a checklist ensures that all team members can understand and complete any necessary steps, providing consistency in your preparation process and simplifying handovers from year to year.
2. Hire an experienced auditor
Choose an auditor with a proven track record of working with non-profits and charities. Look for professionals who not only understand the financial side, but also the unique operational challenges and regulatory environment of the charity sector.
Initiate communication at least 6 months before the start of the audit to allow your team to understand their specific document requests, helping you better plan and pace your internal preparation work.
3. Prepare draft financial statements
Prepare your draft financial statements ahead of time. Share these internally with trustees and management, and externally with your auditors. This allows all stakeholders to gain an early view of the financial performance. Critically, if there are any unusual transactions, significant variances, or areas that may present a ‘surprise’, ensure you flag these issues and keep management (and auditors) informed in advance to avoid last minute complications.
4. Conduct a ‘mock audit’
Consider performing a ‘mock audit’ to identify and address any potential weaknesses or gaps in your financial records or controls before the official audit begins. This proactive step can highlight areas that need attention, allowing you to fix issues early and prepare with greater confidence.
5. Complete key accounting areas well in advance
The areas covered in a year end audit are often predictable. Focus your team’s efforts on completing the accounting and paperwork for major, time consuming areas well in advance of the audit date. This includes finalising and reconciling key registers and accounts such as:
- Bank reconciliations
- Fixed asset register
- Debtors and creditors
- Compliance under various acts (e.g. VAT & payroll taxes).
Completing these major components early allows the audit team to begin their work immediately upon arrival.
6. Implement a checking process
Before any data or financial document is released to the auditors, it should pass through a strict review or ‘checker’ process. This setup helps to provide accuracy and presentability of the information minimising auditor queries and unnecessary delays. The Charity Commission also recommends dual authorisation for payments and any changes to bank mandates, with segregation of duties between those involved in the charity’s financial affairs.
7. Engage and brief your team
Ensure board members are aware of the process, brief staff on what to expect and make sure everyone understands their role and responsibilities during the audit. This collective effort streamlines the process and builds a culture of accountability.
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