At times, it may seem like businesses in today’s market are in a constant arms race aimed toward innovation, research, and development. It also feels like many of these companies show no signs of stopping because putting out quality products and services in line with trends are universally shared goals. Despite this being the case, we mustn’t forget that we’re still in the middle of a global pandemic. The global economy is far from a full recovery at its current state, meaning that sustainability and financial security should take priority.
Sadly, only a select few companies take actionable steps toward these more prudent and defensive approaches of safeguarding their finances and cash flows, leaving the vast majority at risk of folding, reallocating resources, or, much worse, getting caught in a bind that leads to bankruptcy. Thus, today we’ll be going over the importance of effective auditing planning strategies, how implementing better policies can help your business remain competitive, and some of the aspects you can incorporate right now.
Streamlines the Internal Auditing Process
Independent verification of your company’s audit trail and efficient monitoring of business transactions are mechanistic yet highly crucial to your core operations. All it takes is one misstep to go through the holes before it becomes something more challenging to solve. As a result, effective audit planning for your regular internal audits helps streamline the process, enabling many immediate benefits such as timely resolutions of potential problems, ensuring validity and organization of records, and improved coordination with external audit teams.
Timely Resolutions of Potential Problems:
Inflation rates are rising at their fastest yet by records. Even if companies cut costs and utilize more frugal projects to minimize expenses, supply chain issues will be the least of their problems if negative outlooks escalate. Still, with the help of effective audit planning, companies can provide appropriate attention to areas needing improvement before they can cause any further disruptions. And timely resolutions of any risk factors will be crucial to sustainability.
Ensure Validity and Organization of Records:
Valid and well-organized accounting records are the giant piles of paperwork that solidify any successful business. But when material misstatements, transaction errors, or the risk of fraud are detected too late, this can cost you a lot more capital that would’ve been delegated for more productive use-cases. In contrast, when effective audit planning is present, your policies will immediately employ corrective procedures to maintain quality and limit damages.
Improved Coordination With External Audits:
Lastly, given that publicly-held companies are obligated to an annual external audit, cooperation with the audit engagement team is necessary to conduct smooth attestation services. But since the provisions of sufficient and appropriate audit evidence naturally take significant time investments, long delays are of high risk with businesses with inefficiency internal control. Therefore, effective internal audit planning becomes all the more important to improve coordination with external audits.
How Should Businesses Approach Effective Audit Planning?
Although effective audit planning is by no means simple, getting your feet off the ground and having the necessities in place is not impossible. Specifically, we recommend focusing on the performance of regular risk assessment activities, the establishment of internal control systems, and observing preliminary evaluation for materiality.
Perform Regular Risk Assessments and Management:
No company is exempt from risk, and provided that factors such as human error, conflicts of interest, misapplication, and the likelihood of fraud are present dangers to account for, risk assessment and management is necessary. You may also consider corporate training programs to equip management with the right tools to mitigate issues as much as possible.
Establish Internal Control Systems to Detect Errors:
Internal control can be implemented in many ways, but you must first establish a system that satisfies preventive, detective, and corrective procedures. These three distinct will help protect your firm against irregularities through accuracy, segregation of duties, specific authority, and many other control activities.
Preliminary Evaluation of Materiality Levels:
Last but not least, your company must incorporate preliminary evaluation of materiality levels to help reduce the risk of economic fallout and misuse of resources. So be sure to include thresholds for expenses incurred and assets maintained for the fiscal year to protect working capital of substantial importance.
Safeguard Your Company’s Future by Protecting Its Finances
Overall, with the world moving so fast and innovation seemingly happening by the day, financial safety and your company’s sustainability must come first before considering the opportunities available with emerging technologies and increasing consumer demand. And while Walmart may already be taking advantage of the Metaverse, we firmly believe a more passive and prudent perspective is necessary for smaller to medium-sized businesses.