The four key things you should understand from your audit in 2020

It seems a thing of the past now, but I remember being at a conference last year and being told an interesting fact about the audit industry. That, in 2019, articles which included auditors, generated more online hits in the FT than articles about Brexit.

Wow! I am certainly not expecting this article to gather the same level of interest, however, it demonstrates the change which is happening in the audit market and I am a firm believer that these changes are positive for everyone receiving audit related services.

This has also been a challenging year for business and as the recession bites, the temptation for business owners and Boards to make snap decisions to realise a short term benefit is high. But, those who invest time in re-evaluating their business and make healthy ethical decisions, will see longer term growth and will be front-runners for when the storm passes.

Economic uncertainty and crises will always expose businesses who have previously been operating on thin ice, but leaders should not revert to widespread cost saving unless it is truly necessary. In recent months, I’ve been amazed at how many conversations I’ve had with business owners who really do not tap into the value that audit can offer. If you are not getting the value you deserve out of your audit process, now is the time to act. The insight Auditors can provide into the market and your peers, or advice on improving a process or control, may just ignite the spark that keeps your business alive; and you are helping to change and shape an important industry which remains under pressure to redefine its purpose at the same time.

Here are 4 key things, which I recommend that you should be doing with your auditor during this Covid year:

1. Use your auditors to the best of their ability and help understand your business better

Audit firms are full of intelligent, curious people who are trained to ask difficult and insightful questions about your business. Following recent and challenging reviews into the profession, audit focus is swinging away from basic compliance and more towards ensuring transparency and value for business stakeholders. Accordingly, auditors are addressing such challenges as critiquing the control environment around key business decisions, understanding and presenting the effects of different accounting methods and the “quality of earnings” and mitigating business risks. We are not just a compliance service!

2. Helping Board’s understand forward looking projections

This particular issue (especially in the Covid year) is often at the top of an audit team’s agenda. The Board’s first priority should always be to make sure that financial projections made around Going Concern are robust and fit for purpose. As auditors we need to examine the assumptions used by management in determining the estimates made, many of which are based on management’s judgement and previous business experience. This process can often be a pinch point in the auditor / business relationship, but it need not be. Can your auditors help you understand whether your budgeting process or software is fit for purpose and is mathematically correct? Have you thought of all the potential downside scenarios and what these can mean for your business? Early engagement in the audit process on these matters is always the key to success.

3. Understanding your business risks

Understanding the risks which exist is fundamental in the audit process. Your auditors will be understanding your business risks and the likelihood of them transpiring. In particular:

  • Financial risks – understanding what the critical areas of exposure are when it comes to currency, interest rates, and other financial assets and liabilities is key to a business’s survival in the current economic climate. Auditors are reliable experts who understand each of these areas and should provide assessments, in a comprehensible way, directly to the Board.
  • Data risks – an auditor is also required to develop an understanding of the IT systems, procedures and controls in place at your organisation. Good audit process will have assessed your IT processes and risk mitigation plans and should be able to give you a view on where you stand in comparison to best practice. With many employees now working from home and news of Covid related phishing attacks and data breaches on the rise, this item should be high up on the agenda for future proofing your business.

4. Quality of Corporate Reporting

I am passionate about this area and a firm believer that 2020 is not the year for businesses to shy away from including extra detail in their financial statements about corporate matters. Hot topics in this area include sustainability reporting, corporate governance, executive remuneration and detailed understanding about forward looking projections or judgements.

Recent studies have shown that stakeholder decisions are being driven less from financial metrics and more about an organisation’s value creation story. Your auditor’s should have a good view as to whether the information included in your public filing is both compliant and meaningful and remember, transparency doesn’t cost a thing!

All of these items aren’t necessarily new, or ground-breaking. But, if you are not getting this sort of value from your audit; now is the time to ask why and begin extracting the true un-tapped potential from your annual compliance service.

Ryan Moore is Audit Director and Head of Audit & Assurance and offers a full range of audit and assurance services to clients. Our audit services are tailored to your needs and provide Boards with the audit insights they need, in a concise and understandable format. If you are not tapping into the value that audit can offer, we would like to speak to you about your business and how our audit approach can help you navigate the changing world. Call 01242 776000 or email to arrange a call with Ryan.