Preparing For An External Audit Effectively

Dear Accountants, External Audits Don’t Have to Be Stressful Let’s be honest, when the message goes out that external auditors are coming, tension rises across the organization. Finance teams get anxious. Management starts to worry. Everyone feels the pressure. But here’s the truth: Auditors aren’t just there to “find faults.” Their mission is to: ✅ Verify that your financial statements present a true and fair view ✅ Ensure compliance with accounting standards (IAS/IFRS) ✅ Assess the strength of internal controls and financial processes With the right mindset and preparation, audits can be smooth, insightful, and even a chance to grow. Here are some practical Tips to Prepare for External Audits (Especially for NGOs) 1.     Start Preparation Early. Don’t wait for the audit notice. Keep documentation and reconciliations up to date year-round. 2.    Ensure Financial Records Are Complete. Record all transactions, update bank reconciliations, and file every receipt and invoice properly. 3.    Review Grant Agreements and Donor Requirements.Understand each donor’s reporting rules and confirm that funds were used as agreed. 4.    Prepare Audit Schedules in Advance. Have schedules for assets, liabilities, income, and expenses ready and ensure they reconcile with your general ledger. 5.    Label and Organize Files Clearly. Whether digital or physical, clear labelling saves time and shows professionalism. 6.    Reconcile Inter-Project and Inter-Fund Balances.For multi-project NGOs, ensure all inter-project transactions are reconciled and supported. 7.    Review Internal Controls. Check that policies like approvals and segregation of duties are being followed and strengthen weak spots early. 8.   Work with Program Teams. Financial accountability isn’t just for finance. Align program reports with financial reports, especially for donor-funded activities. 9.    Hold a Pre-Audit Meeting. Review key audit areas, past findings, and unresolved issues. Preparation builds confidence. 10. Be Transparent and Cooperative. Provide information promptly, answer questions honestly, and avoid being defensive. 11.  Document Learnings and Follow Up. Review findings together, agree on corrective actions, and follow through. 12. Maintain Continuous Communication. Keep lines open between finance, management, and auditors before, during, and after the audit. External audits should not be feared, they are a chance to demonstrate accountability, improve systems, and build donor confidence. With good preparation and teamwork, the process can run smoothly and become a valuable learning experience for everyone involved. How does your organization prepare for external audits? Let’s share best practices and grow together.

I've sat in more than 50 audits across GCC & Europe (ISO 27001, SOC 2, SAMA etc..) You rarely fail for missing a piece of evidence... You fail because the proof is scattered, outdated, ownerless, or can't be found (while the person providing it swears they submitted already) To avoid this: 1- Pick one system of record for evidence (SharePoint or Google Drive, etc.). No WhatsApp, Teams DMs, or email threads as “evidence.” 2- Create one folder per Framework. Create sub folder per control group. Use a clean name for files, {ControlName}{YY-quarter(e.g. Q1)} 3- Assign one named owner per domain (Access, Assets, Change, Incident). Give each an audit response cheat sheet: what to show, where it lives, who to pull in (good luck with getting other teams doing it!) 4- Run a pre-audit dry run: fresh eyes click every link, open every file, check dates/signatures, and tie each piece of evidence to the control ID. Time-box to 2 hours. Ask the team: “If we were audited tomorrow, where would you point the auditor to?” 5- Automate refresh: exports/screenshots as needed (monthly?), owner sign-offs, and expiry checks so proofs don’t go stale. Simple fix: Make evidence hygiene the product, not an afterthought. Or simply save yourself the headache, at Vamu we automate a large part of this, and map controls to owners and time-stamped proofs so the folder is clean by default. But you can start with the list above this week. Audits are won (or lost) in the evidence folder.

After being in the audit industry for many years, one thing is clear: First impressions matter in the compliance industry……. Having performed many audits, both onsite and virtual, I can quickly tell whether a company will smoothly navigate the process or struggle through it. There are clear signs, and you can absolutely prepare for them. Here’s a simple six-point checklist I share with anyone who wants their audit to feel like a strategic review instead of a stressful test: 1. Share Your Compliance Documents Early Send your latest compliance documents (like QMS, FDA, and ISO certifications) at least one week before the audit. A good QMS should reflect consistent updates, showing that your procedures are evolving and not stagnant. 2. Show How You Track Regulatory Changes Include a list of any important regulatory changes (like FDA or ISO updates) since the last review. Highlight how you stay updated, through newsletters, regulatory bodies, or industry guidelines. 3. Give a "What Changed" Briefing Talk about any major changes like staffing shifts, product updates, or market feedback from the last year. This helps the auditor focus on the key changes, instead of wasting time finding them. 4. Have Top Management Participate Have your CEO or site leader attend the opening, closing, and management review sections. Their involvement demonstrates commitment and helps speed up decision-making during the audit. 5. Keep a Simple CAPA List Maintain a single list or document that includes all internal CAPA actions, past audit findings, and significant events. This single source of truth builds trust and avoids confusion. 6. Have Your Post-Market Files Ready Ensure all relevant post-market documents (PSURs, complaint data, FSCA logs) are organized and easy to access. When your team is prepared, the tough questions from auditors feel more like confirmation rather than confrontation. Why should you invest time upfront? It makes the audit go smoothly with fewer “please provide” moments. It also builds a good reputation with regulators, making future audits easier. Auditors and quality teams: What single practice gives you a confident start?

I became an auditor to discover financial truth. An audit is a mirror to a company's reality. I learned this early in my career. Transactions are not just debits and credits. They are about people and their choices. Audits surface what culture tries to hide. Late reconciliations, rushed reviews, brittle controls. Behind each symptom is a habit. If we treat an audit like a fight, we lose the lesson. If we treat it like an opportunity, the company grows. Here are my 7 tips to help you prepare for an audit: 1. Close cadence: ➞ Every task has an owner, a deadline, and reviewer. ➞ Have a clear plan so the audit starts on time. 2. Reconciliations: ➞ Bank, ledgers, intercompany, inventory, payroll.  ➞ Verify, explain, clear or escalate. 3. Evidence on first click: ➞ Policies, contracts, approvals, and calculations. ➞ Saved with transactions for easy access. 4. Cutoff discipline: ➞ Shipments, revenue, accruals, and provisions ➞ Completed promptly with clear timestamps. 5. Segregation of duties: ➞ Nobody does everything. ➞ Share tasks to lower collusion or fraud risks. 6. Open door policy: ➞ Staff can flag pressure or errors without fear. ➞ Encourage proactive disclosure. 7. Review within 72 hours: ➞ After close, capture errors and fix root causes. ➞ Prompt improvements save you time. When leaders do this, their audit costs reduce and trust increases. Run this ritual for your next audit and let me know how it goes. How do you keep better financial records? ------- ➕ Follow Jonathan Maharaj FCPA for finance‑leadership clarity. 🔄 Share this insight with a decision‑maker. 📰 Get deeper breakdowns in Financial Freedom, my free newsletter: https://lnkd.in/gYHdNYzj 📆 Ready to work together? Book your Clarity Session: https://lnkd.in/gyiqCWV2

If customs walks in today, are you ready? Most aren’t and the penalties prove it. What triggers a customs audit ? 1. Random Selection Part of risk-based targeting systems to keep audits fair.  2. Red Flags Errors or inconsistencies in import declarations can raise alarms.  3. Industry Targeting   Customs focuses on industries with high fraud risks like electronics and pharma.  4. Prior Non-Compliance Past penalties or lack of response can trigger scrutiny.  5. **Related Party Transactions**   Intra-company deals face extra checks for pricing issues.  6. FTA Claims   Large claims for Free Trade Agreements may lead to reviews.  Common Mistakes That Trigger Penalties  - Misclassification  Customs uses data analytics to find errors. This can lead to a duty shortfall of up to three times.  - Undervaluation Transfer pricing reports can expose undervalued goods, resulting in fines and interest.  - FTA Misuse  Lack of origin support during claims can mean repayment of duties plus penalties.  - Poor Recordkeeping Random audits can catch missing documents, leading to fines.  - Misdeclared Dual-use Goods   These can lead to serious legal issues.  - Inconsistent Broker Instructions   Discrepancies can cause loss of benefits.  Preparation Best Practices - Assemble a Compliance Task Force    Include Trade Compliance, Finance, Logistics, and Legal teams.  - Review Historical Import Data Analyze reports from brokers and customs tools for the last 12 to 36 months.  - Validate HS Classifications  Cross-check with product specs and rulings.  - Review Valuation Methodology   Ensure all dutiable elements are included in declared values.  - Confirm Origin Documentation  Match each FTA claim with valid supplier declarations.  - Check Recordkeeping Protocol   Keep all documents accessible.  - Audit FTA Claims  Randomly select entries to trace back to source.  - Examine Related Party Transactions  Ensure customs values are based on fair market pricing.  - Spot Audit Broker Instructions  Pull recent declarations to check accuracy.  - Prepare a Compliance Report   Summarize risks and actions taken.  **Do's**  ✅ Designate a single point of contact for customs.   ✅ Be transparent but only provide requested information.   ✅ Keep an audit log of all communications.   ✅ Prepare an intro presentation outlining import processes.   ✅ Provide documents promptly and in order.  **Don'ts**  ❌ Don’t argue or blame other departments.   ❌ Don’t offer unsolicited documents.   ❌ Don’t allow unscheduled interviews with untrained staff.   ❌ Don’t say “we’ve always done it that way.”  **Post-Audit Actions**  Review findings with your broker or legal team.   Respond within the deadline to correct inaccuracies.   Implement corrective actions and document them.   Schedule a follow-up audit within six months.   Update SOPs and training based on findings.  

Be Better Than Your External Auditor Recently, I spoke with a friend who owns SOX compliance at a F50 company who has a reputation for running a great SOX program. When I asked him what he attributed most to his organization's success with SOX, he replied, "I've always coached my team to be better than our external auditors." His reasoning was simple: EA's often ask about things outside their scope, or not necessarily relevant to their org., questioning details they don’t fully understand. These questions can force teams to invest time and effort in new controls, testing procedures, or extra documentation—work that becomes difficult to push back on once it's raised. The result? Increased burden on the SOX team, control owners, Finance leadership, and even the auditors themselves. If this sounds familiar, here are four strategies to help your SOX team stay ahead of these challenges and better negotiate workload requirements. 1. Take ownership of keeping your organization up-to-date with SEC, PCAOB, and External Audit firm guidance. In a recent flash poll during the Internal Audit Collective’s SOX Accelerator Program, only 50% of leaders said their organizations stay well-informed on SOX guidance. Another 25% acknowledged room for improvement, while the rest stated it is someone else’s responsibility. To avoid unnecessary work, SOX leaders must stay ahead of external audit firms' interpretations and methodologies. Discuss new guidance as a team, challenge different perspectives, and proactively align your approach before auditors do it for you. 2. Understand how different teams from the same external auditor apply their methodology—both standard and challenging aspects—across various clients. Struggling with your EA’s requirements for IPE documentation?  Connect with SOX leaders in your industry who use the same audit firm. If their documentation requirements differ, you may have room to negotiate and push back on excessive requests. 3. Know your ICFR environment inside and out. Why are key controls key? Why are they designed that way? How do compensating controls help? If your team can’t confidently answer these questions, your EA will drive the discussion. Build credibility by ensuring everyone can clearly articulate the control environment’s design, purpose, and interdependencies. 4. Anticipate External Auditor concerns and document clear justifications before they ask. Audit firms escalate issues when they sense uncertainty. Proactively identifying potential concerns and documenting your rationale upfront allows you to steer conversations rather than react to them. While these steps don’t guarantee an absolute success negotiating with your external auditors, they will establish you as a credible, technical leader. And this credibility will definitely increase the chances the External Audit Partner considers your perspectives and grants flexibility when needed.    And there is always room for flexibility. Always.

This one checklist made my life 10x easier (Save hours later by following these steps now!) Over the last 22 months, I’ve attended 184 walkthrough meetings. Trial. Error. Frustration. Fixes. And through all of that, I created this simple system. A checklist that every auditor should follow after the walkthrough ends. If you’re tired of scrambling for screenshots, losing notes, and chasing follow-ups days later, Save this post. Share it with your team. Use it every time. Post-Walkthrough Checklist: The SOP I swear by 1. Segregate your screenshots (Immediately) - Use Windows + Print Screen to capture quickly. - Create a new folder right after the meeting using this format: [Date]_[Control_ID]_[ControlName]_[AuditName] - This makes it easy to find everything later. 2. Store in two places - One local folder on your laptop - One shared folder (e.g., Teams) so others don’t need to ping you 3. Summarize your notes - Right after the meeting, take 5–10 minutes to clean up your notes. - Capture who said what, any key clarifications, and system flows. 4. Save notes smartly - Again one local, one shared. - Use the same naming format for consistency. 5. List out all follow-ups in one place - Don’t rely on memory. - If something needs clarification or additional evidence, document it immediately. 6. Assign owners and due dates - Use a tracker to assign each follow-up to a control owner with a clear timeline. - This alone will save you days of back-and-forth. 7. Update your main control tracker - Capture the status of the walkthrough and all pending items. - If your team doesn’t have a control tracker, create one. (And if they do make sure you’re using it daily.) Bonus: I personally keep a tracker with separate tabs for each audit I’m working on. Every control I’m assigned gets listed with deadlines, dependencies, and current status. This isn’t just a checklist. It’s a habit. Follow it after every walkthrough and your future self will thank you during wrap-up week. Have your own post-walkthrough system? Drop it below! I’d love to see how others do it.

🎯 "Again? Seriously?" — The life of a Quality Manager. Between IATF, ISO, VDA, and customer-specific requirements, it can feel like we’re living in a never-ending episode of “Audit Things.” But the best organizations don’t just survive audits — they build systems that make them always ready. Here are a few strategies I use (and coach my teams on): ✅ Build audit readiness into daily work. Layered Process Audits (LPAs), visual controls, and good documentation habits mean fewer surprises. ✅ Standardize evidence. Keep control plans, work instructions, and Quality Alerts organized and version-controlled in one place. ✅ Close the loop fast. Treat audit findings like opportunities — track root cause, verify effectiveness, and communicate changes. ✅ Train beyond compliance. Make sure operators and engineers understand why requirements exist — not just what to check. When you do that, audits stop being stressful events... and start becoming proof that your system actually works.

Wait, …what? Auditors are people too?? No way... Well, way! Just like you and me - auditors rely on their past experiences, and they will inevitably bring their own biases into the process. My advice from the audit trenches… Get to know them early in the audit process. Seek to understand their perspective and ask the right questions. Audit readiness is about being proactive and making your compliance journey clear, transparent, and accessible. Few tips for your first meeting with your auditor Understand their perspective- Remember, auditors are people too. They’ve likely encountered a wide variety of organizations and industries, and their past experiences will shape their expectations. Ask questions that help you gauge what matters most to them- "What have you found to be the most common issues or red flags in audits like this?" "Can you share examples of best practices or common pitfalls you’ve seen in similar organizations?" Understanding their history will help you tailor your audit preparation and anticipate areas of focus. Clarify key priorities early- Start by understanding what’s going to be important to your auditor or firm. From my experience every audit firm, and especially individual auditors, have areas they care about most- "Are there any specific controls or areas you expect will require more attention in this audit?" "How do you typically approach assessing evidence for (specific domain, like security or privacy)?" This helps you focus your energy and ensure you’re providing exactly what they want to see. Prepare evidence that tells THE story- Don’t just throw documentation at your auditor. Present it in a way that’s organized, clear, and easy to understand: Break down complex controls into understandable pieces. Use a logical flow that walks them through your compliance journey. Offer narrative walkthroughs for key controls or processes, explaining how the evidence connects to the control. It’s about making sure they understand not only what you’re doing, but why it’s effective. BIG TIP -> Make their job easy: The easier you make it for them to find, review, and understand evidence, the smoother the audit process will go. Here’s how- Organize documentation with clear labels and references and date/time stamped! Provide summaries or guides (or I love to do videos) that help auditors navigate complex systems or evidence. The goal is to help them complete their audit with as little friction as possible. Be open and transparent- Audits are collaborative, and the key to success is open, HONEST communication. Be upfront about any potential weaknesses, but also explain how you're mitigating risks. "Here’s an area we’re currently improving, how can we best demonstrate that in the audit?" Creating a strong relationship with your auditor can set the tone for the entire engagement. Remember… Auditors are people too. Get to know them, be transparent, and put a smile on their face! Audit success! #CISO #MSP #audit

Q4 isn’t the time to play catch-up. It’s the time to get ahead. Q4 exposes whether Finance is leading or lagging. The end of the year brings pressure, but also opportunity. A strong Q4 sets you up for tighter controls, sharper decision-making, and a stronger start to a new year. Here's 5 areas to clean up before year-end and why they matter: 1. Follow up with internal & external business partners Don’t wait for auditors or regulators to call you. Schedule meetings with auditors, regulators, banking partners, and legal counsel before year-end. These conversations help you: • Share notes and close any gaps proactively. • Address disclosure questions now instead of in crunch time. • Treat service providers like strategic partners so your company ends Q4 strong and enters Q1 positioned for growth. Companies that do well prepare before the deadline hits. Companies that struggle wait for surprises. 2. Review key general ledger accounts The general ledger is where small errors hide and big problems begin. • A year-end cleanup should: • Locate and correct errors. • Eliminate outdated or immaterial entries. • Protect against fraud ensuring everything is valid and documented. Clean books mean no surprises for you or your auditors. 3. Assess the value of assets Two-thirds of CFOs plan to allocate or reallocate capital next year. But you can’t plan investments without knowing the true value of what you already own. Use Q4 to: • Review both long- and short-term assets. • Apply GAAP impairment testing rules. • Take write-downs now instead of being surprised later. Consistent accurate valuations drive smarter capital deployment. 4. Analyze significant accrual accounts Accruals can easily distort financial statements if not reviewed carefully. The risks increase when large projects cross over fiscal years. Use Q4 to: • Review estimates and ensure accruals are supported. • Contact large service providers so expenses are accounted for properly. • Ensure accruals reflect the company’s true financial position. This step avoids any January shock of misstated obligations. 5. Audit internal controls Strong controls aren’t just about compliance, they build trust in your numbers. Testing your controls now allows you to: • Identify weaknesses before external auditors arrive. • Strengthen reporting effectiveness going into the new year. • Build confidence across leadership and stakeholders. A surprise control deficiency in Q1 can be prevented now. Q4 isn’t just about wrapping up the year. It’s about sharpening your financial edge. Finance leaders who own Q4 close the year, and set the pace for the next one. Where is your finance team ahead, and where are you still playing catch-up? ___________ Please share your thoughts in the comments. Repost if this will help someone in your network. Follow me, Beverly Davis for more finance insights.