Key Takeaways:
- There are several things you can do to prepare for a successful audit, such as creating a deliverables calendar to track deadlines and milestones.
- Assigning clear roles and responsibilities can make sure you have efficient audit coverage and avoid any bottlenecks.
- Be sure to prioritize time-consuming audit items early to address potential challenges in advance as they arise.
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2024 came to a close and 2025 is well on its way, which means that business leaders will eventually have to turn their focus to end-of-year audit preparation. Audits can be an arduous process even for well-prepared organizations, so leaders must not neglect the detailed planning and goal setting needed for success. Where audits are concerned, failing to plan is planning to fail.
This article explores key points, best practices, and reminders for business leaders as they prepare to begin their year-end audit preparation.
1. Create and Maintain a Deliverables Calendar
Collaborating with your auditor or using their portal to create a deliverables calendar can help your team meet deadlines and keep important items from falling through the cracks. Work backwards from the date of issuance, adding key milestones such as preparing audit confirmations, providing valuation support for private investments, creating drafts of financial reports, conducting on-site visits. Connect with your auditor around each milestone or specific date to ensure alignment and circulate the finished calendar to both your team and the audit team. Refer to it regularly and adjust if your team is not on track to meet a deadline.
2. Establish Coverage and Clear Roles
Be sure you have sufficient audit coverage on your in-house team. Use your auditor’s portal to assign roles and responsibilities clearly, avoiding ad hoc assignments. For example, verify that the CFO and the controller are not performing duplicative work. The precise breakdown of responsibilities will differ based on individual circumstances and team composition, but the goal should be to avoid bottlenecks.
3. Prioritize Heavy-Lift Items
Certain assets, such as illiquid assets, private investments, or level 3 assets, can be more time-consuming to audit. Focusing on time-intensive items early on in your audit preparation provides your auditor with the opportunity to ask questions and identify any potential challenges ahead of time.
They might ask questions like: Are your valuations prepared and up to date for all investments? Have you prepared calculations to support those valuations, such as revenue or earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples, or a discounted cash flow (DCF) spreadsheet? Have you provided rationale for any assumptions or adjustments made, inputs and discount rates used, or weightings determined between different valuation approaches?
4. Make the Most of the Interim Period
In the days and months leading up to the end of the financial year, the auditor can perform interim work, such as testing new investments and gathering documents for walk-throughs. Connect with your audit team to determine how you can enable them to make the best use of this time. Consider holding a meeting with your auditor during Q4 to review all investments your fund will hold on December 31. Doing so will give your auditor the opportunity to ask questions as they prepare. Front-loading work where possible can ease the pressure of meeting future deadlines. Delivering approved Q4 fund accounting information to your auditor is the first step in this process and having a plan in place to close and deliver final books as soon as possible in January will help set the stage for a strong start to the audit.
5. Examine and Address Past Changes and Challenges
Reflect on what has changed since last year. Set up a call with your auditor to discuss any changes and reassess the biggest problems you faced in your previous year’s audit. For instance, has your firm launched new funds or expanded into new investments or asset classes? How were those issues addressed then, and how do you plan to handle them now? Proactive planning will help avoid bumps in the road and reduce the chances of having to react to new audit matters once the process is underway in Q1 of the next year.
6. Prepare First Drafts of Financial Statements and Footnotes
Use your first drafts as an opportunity to identify and address gaps before the audit process begins. Do you need to add any new accounting pronouncements or disclosures? Is the fund holding any new types of investments or did it have any new transactions that require additional disclosures? Drafting your financial statements in Q4 can help you verify that your auditor will be comfortable with the format and footnotes. It can also reduce your workload in the following Q1.
7. Work as a Team with Your Auditor
Even though auditors must adhere to strict independence requirements, you should always be working collaboratively, communicating regularly, and coordinating around your shared responsibility for a successful audit. Setting up a regular check-in, such as a weekly meeting, can help with communicating progress updates to the in-house and audit teams and with assessing the standing of your deliverables calendar. Engagement can help make sure nothing slips through the cracks or fails to get addressed.
8. Preparation Begets Performance
Year-end audits can be daunting, challenging undertakings, especially if your organization is new to the process. But no matter your audit maturity, a proactive and holistic approach to audit preparation can help smooth the process, prevent pitfalls, and set both your in-house team and their audit team counterparts up for success.
How MGO Can Help
At MGO, we understand the complexities and challenges faced by financial services firms. Our dedicated Financial Services industry team is equipped with the expertise and experience to provide tailored solutions that meet your unique needs. From tax planning and audit readiness to business planning and digital transformation, we offer comprehensive support to help your firm navigate the evolving financial landscape.
Our team collaborates closely with leading law firms and banks to deliver efficient, coordinated solutions that foster innovation and enhance client experiences. Contact us to learn how MGO can guide your business through growth, stability, and exit strategies, maintaining compliance and resilience at every stage.