How accountants can ensure compliance for regulatory audits

Audits, otherwise known as ‘tax investigations’ or ‘compliance checks’, are a crucial part of regulatory compliance, but that doesn’t make them any less overwhelming for your clients.

Mistakes and non-compliance can lead to financial penalties, reputational damage, and operational disruption. Plus, audits can reveal when additional work to be done; which can become an added pressure for your clients.

Accountants and bookkeepers can provide some much needed support and guidance for clients facing an audit. And, while it’s no easy task, helping your clients through the process can be an opportunity to strengthen their finances and position their business for the future. But, only if you have a thorough plan in place for audit preparation, execution, and follow-up.

In this guide, we show you how to support clients through all three stages of an audit and ensure compliance for years to come. Learn how to avoid last-minute data gathering with the right tools and simple processes for a smooth audit.

Preparing for regulatory audits

Preparation is key to a successful audit and helps reduce stress once the process is underway.

By reviewing the regulatory requirements, preparing reports, and setting up controls and internal audits, you can help your clients make the best of the situation.

Here are three steps for successful audit preparation.

1. Understanding regulatory requirements

It’s time to get clear on the rules your clients need to follow and which regulations apply to them.

Your clients could be audited on things like:

• Annual company accounts
• Payroll
• Tax compliance
• Anti-money laundering (AML)

Bear in mind that regulations change – so the processes and controls that worked for your clients last year might need to be refreshed. Plus, your clients change, too. For example, the size of their business could impact which regulations they need to follow. Small companies may not need to be audited on their annual accounts (check HMRC’s guidance on company audits to be sure).

When it comes to meeting these regulatory requirements, your clients will need a clear view of how their business is operating, so they can make improvements. But, before you can make improvements, you need to understand where you’re starting from. Reporting tools can help you with this. For example, you could create a cash summary for the last quarter to track the regular flows of income and outgoings and spot discrepancies or errors.

2. Organising audit documentation

If your clients are facing financial audit – say, company annual accounts, payroll, or anti-money laundering – you’ll likely need to provide financial statements and records.

This is why maintaining accurate business records, such as invoices, receipts, and payroll, is so vital. You can easily create reports and provide the right evidence, knowing client data is complete and accurate.

Records spread across programmes, documents, and physical files are hard to consolidate. And, you could spend hours hunting down a single piece of paperwork or switching between programmes to find information.

But, cloud-based accounting software like Xero offers centralised storage (for easily retrievable records) and the ability to connect client bank accounts for a live transaction feed. From here, financial data can be turned into clear reports in a matter of clicks.

3. Implementing internal audit controls

Conducting internal audits is a great way to spot risks and address them before an external auditor does. Encouraging your clients to conduct their own audits will help them address compliance challenges iteratively, and make improvements over time.

Your clients should also have internal audit controls in place as a first line of defence. Internal controls are typically split into two categories – preventative and detective.

Preventative controls are to reduce the risk before it occurs. For example, an automated approvals process could be considered a preventative control, because it ensures all purchase orders and invoices are authorised before payment.

Detective controls are to pick up on anomalies, changes, and errors. An external audit counts as a detective control, because it surfaces non-compliance and fraudulent activity after it's happened.

Regularly reviewing and comparing financial data is a key preventative control, and something you can support clients with using Xero’s accounting software. The history and notes report summarises changes to financial data – covering invoices, bills, contacts, inventory and more. You can also see changes to the organisation’s financial settings and drill down into the reports for deeper analysis.

Supporting clients with an audit in progress

Getting your clients in the best place for an audit will call on your expertise and experience. Here are some things you can do to help the audit run smoothly.

Communicating with auditors

Being clear with auditors and providing evidence in good time will keep the audit moving forward. Focus on communicating openly and transparently, responding in good time, and requesting feedback where needed.

Agreeing channels of communication upfront can also help the process flow. Ask your auditor for their preferred format for receiving reports and documentation, and make sure evidence is easily available and accessible to you. That way, you can respond to the auditor's request quickly.

Software that pulls in live data and generates reports for you can help here. Drafting reports yourself can take time, especially if you don’t have all of the data readily available. With Xero accounting software, for example, you can create shareable reports for auditors to review based on reliable financial data. These can be exported in various formats depending on your auditor’s preferred method of communication.

Providing accurate information

Incorrect or incomplete evidence will slow the audit down. So, it’s in your, and your clients’, best interest to provide the right information at the right time.

An auditor could request reports for a specific date range or the most recent data – for example, they might want to see a reconciliation report for the last financial year, or the last quarter.

To do this, you need tools to generate these reports using accurate, up-to-date financial data. And, these reports need to be customisable, so you can respond quickly to requests for a specific data range or financial detail.

Modern accounting software that’s updated in real time and pulls in live data will help here. So long as you keep reconciliations up to date, reports generated will be based on the most current information.

Xero software can let you customise the data range for reports, and you can consolidate several reports in a report pack for auditors. Xero generates the reports for you – there’s no inputting data or designing the perfect layout. Key financial reports like profit and loss, cash flow, and balance sheets are readily available.

Staying calm under pressure

Audits are stressful – your clients want reassurance, and auditors require documentation and clear communication. Balancing other workloads and priorities while supporting clients with an audit is tough.

If you’re drafting reports and compiling evidence yourself, it can be time-consuming and inefficient. The longer it takes, the more pressure you feel. Finding a single file or document can be a nightmarish task if items are stored physically and digitally, in various formats and programmes. Centralising data storage will save you time and ease the pressure – you can be confident you know where everything is saved, and can retrieve information easily.

Xero accounting software brings financial information and files into one safe, secure space. You can use the files inbox to organise and retrieve documents easily, and clients can use their smartphones to upload documents to this inbox by using a custom Xero email.

Post-audit follow-up and compliance

The work doesn’t end when the audit is over. Now’s the time to address findings, implement recommendations, and establish new systems for ongoing compliance and future audits.

Reviewing audit outcomes

Review the audit report and findings with your clients, taking time to talk through issues and explore ideas for addressing them. Resolving issues and weaknesses promptly will help your client stay on the right track and avoid non-compliance in the future.

This is a good time to take another look at your client’s financial records, reports, and any other documentation. Go back to financial records and reports to identify the root cause of issues raised.

Having access to software that lets you generate reports and summaries for different time periods is helpful here. It makes it easier to spot trends and patterns over time, pinpoint where issues began, and ultimately plan how to improve compliance processes.

With Xero accounting software, you can generate a specific report like a balance sheet, and use the ‘Compare with’ feature to view the report against past periods. This can help you identify patterns, trends, and problem areas. From here, you can tackle specific issues directly.

Implementing recommendations

Your clients could have more than a few recommendations to implement from the auditory report, so set about prioritising which ones to address first.

Look at the risk level and urgency of each recommendation. You could use numbers or colours – like a traffic light system – to rank each recommendation. Work with your client to assign improvements to team members, along with a timeline and deadlines. Improvements should be reviewed periodically to check they’re doing the job. In some cases, your client and their team may be able to resolve the issue with software, or apps.

Xero accounting software users get access to an app store full of integrations that support compliance with various regulations. If clients are pulled up on their internal controls for POs and invoicing, an app like ApprovalMax can tighten up their process. POs and invoices are rooted to specific approvals before they can be actioned and paid, making it harder for illegitimate or incorrect documents to slip through the next.

Maintaining year-round audit readiness

Ongoing compliance monitoring can take many forms, but the most important thing is to make sure you’re doing it regularly. That could mean generating reports and summaries for clients and reviewing them together regularly. And, ensuring you and your client have access to live data so you spot errors and anomalies early.

Automating internal controls and compliance processes can also help with maintaining accurate records and identifying weaknesses. Modern software features and apps use AI and algorithms that can spot changes and alert you if something requires more attention. These tools can run in the background as an extra pair of eyes on compliance.

Xero accounting software has continuous monitoring features such as Xero Analytics that allow you and your clients to stay audit-ready all year round. With Xero, data is presented beautifully and clearly in dashboards and reports, making it easier to interpret and take action on.

Take charge of your audit process with Xero

Effectively managing audit preparation, execution, and follow-up requires you and your clients to be highly organised and strategic.

Fortunately, the right software combined with your expertise and experience can make this happen as smoothly as possible. Xero accounting software gives accountants and bookkeepers the tools to make ongoing compliance less stressful, more smooth, and easily actionable. Access to a live flow of data, tools for generating reports and forecasts, and centralised data storage makes it easier to work with auditors at every stage.

Become a Xero partner and learn more about Xero features that can help you and your clients thrive.