Expert Enterprise Financial Planning: Setting Up an Audit Trail

You’d be hard pressed to find a finance professional who looks forward to the audit process. But with a bit of planning, you can ease the pain of even an unexpected audit.

How?

By establishing a robust audit trail.

An audit trail represents a clear record that allows auditors to trace your company’s financial data back to its original source. For businesses, audit trails are often used when an auditor, internal or external, needs to verify financial figures such as net earnings or revenue.

Why is it important to establish an audit trail? A detailed audit trail shows regulators as well as investors and lenders that the information in your company’s financial statements is accurate and trustworthy. It also helps you meet record-keeping requirements for tax purposes.

Additionally, maintaining a comprehensive audit trail demonstrates compliance, helps you monitor data for security issues, and protects your company from liability in legal battles. Here’s how you can keep your organization audit-ready by including audit planning in your financial planning process and establishing a robust audit trail.

Integrating Your Audit and Financial Planning 

Nearly all companies must go through an annual audit of their financial statements, such as the income statement, balance sheet, and cash flow statement. External audits may be required by lenders or, in the case of publicly traded companies, by law. However, internal audits are also useful as a tool that can improve financial processes and controls.

No matter the type of audit, your organization will benefit from a robust audit planning process that creates a clearly defined audit trail. But what’s the best way to establish a strong audit trail?

The audit process is closely rooted in the financial functions of your organization. However, many companies allow their audit trail to be maintained by the IT department.

Although security managers and network administrators may have easy access to company data, they don’t understand the ins and outs of your business’s financial transactions the way your finance department does. That’s why it makes the most sense to integrate the audit planning process with your corporate financial planning and analysis workflow.

This not only streamlines your audit planning process, but it also benefits the finance department. Outside the context of audits, those in the finance department often find themselves needing to search and review financial information, either for their own analysis or when management has a question. A strong audit trail can save hours of review time even before an auditor makes an appearance in your office.

Creating a Robust Audit Trail

Integrating your audit and financial planning processes has its benefits. But how can your finance team ensure that it’s ready for an audit? Here’s how to establish a robust audit planning process that’s integrated with your other key financial planning workflows.

Enact Strong Managerial Control

In 2002, the U.S. Congress passed the Sarbanes-Oxley Act to increase corporate transparency in response to the Enron scandal. One of the law’s main requirements is that senior management and the board of directors must take full responsibility for the accuracy of the company’s corporate governance and financial reporting. That means it’s in the best interest of your company’s leadership to set up a clear audit trail.

Although finance should own the audit planning process, senior management should also play a central role in audit planning. At a minimum, keep the rest of your company’s executive management in the loop as you work to implement new processes. And make sure strong managerial control is built into your system so that leadership can independently access and track your company’s data, documents, and written communications across the organization.

Identify Risk Factors

Consider potential risks inherent to your company’s activities. Risk factors include anything your organization does that could result in litigation or bad publicity as well as potential scenarios that might interrupt business, such as a natural disaster or loss of a key employee. Do your best to mitigate any potential risks and document the process as part of your audit trail.

Create Internal Controls

Internal controls promote accountability, ensure the integrity of your financial data, and pre-empt fraud. To create internal controls, work to standardize all of your company’s financial and audit planning processes.

This can be achieved by creating a procedure manual for every process that finance performs. Each time a process changes, your staff needs to document the change. Although it may be time-consuming to create the first draft, eventually process updates will become second nature and provide additional benefits outside of audit protection, such as faster training.

Keep Tabs on Your Documents

It’s important that senior management and the finance staff always know where to find your company’s key financial documents and records, including financial statements, reports, forecasts, and raw data. Having a single centralized system makes this easier.

Cross-Train Finance Employees

Avoid siloing the different functions of your company’s audit and financial planning processes. It helps to delegate specific tasks, but make sure every employee is cross-trained so they can competently handle multiple steps in the finance workflow. Even if a key employee goes on a long vacation or leaves the company right before a major audit, you’ll still be prepared and audit-ready.

This again highlights the utility of having one system for all your financial processes. It becomes easier to teach a staff member a new step in the process if everyone is already trained on the same system.

Automate Whenever Possible

Corporate financial planning and analysis is a laborious and complex process in its own right. Piling on another, nontrivial step with audit planning only adds to the long list of recurring tasks your finance team needs to tackle. Moreover, the abundance of manual processes makes finance’s job much harder than it needs to be. To lessen the burden, find ways to automate your finance functions whenever possible.

The Tools You Need to Become Audit-Ready

Creating a comprehensive audit and financial planning workflow becomes easier when you use the right tools. Modern enterprise financial planning software solutions come loaded with features that can help you speed up your financial processes while protecting the integrity of your audit trail, including:

• Strong data security: To keep your company protected during an audit, you need a system that provides strong data security. You must be able to track any changes and set up permissions and limits on who can do what, when, and where.
• Flexibility: Every organization is different. You want a system with the flexibility to meet the unique demands of your business. Make sure the enterprise financial planning software you choose can be customized to your needs.
• Scalability: Any system you choose to implement should work for your company today and in the future. If your company has plans to expand, choose a financial planning solution that can be easily scaled up as your business grows.
• Workflow management: For a process as complex as audit and financial planning, you want a solution that will make your job easier, not harder. Make sure your planning system can handle all of the intricacies of your workflow management with configurable process mapping and built-in collaboration without leaving the context of your planning process.
• Automation: In most finance departments, everything revolves around time efficiencies. Sometimes it can feel like there aren’t enough hours in the day. The ability to easily automate key finance functions using new technologies can free up valuable time in your finance department while also minimizing costly errors.

Get Audit-Ready with an Advanced Financial Planning Solution

Creating a clear audit trail is an important consideration from a regulatory perspective, but also for risk management and fraud prevention. You can streamline your audit planning process by integrating it within your overall financial planning and analysis workflow. To become truly audit-ready, consider adopting advanced enterprise financial planning software to standardize your planning processes while maintaining transparency.

Tidemark provides a secure and trusted infrastructure for all of your critical financial planning functions. How does it stack up against other enterprise financial planning software?