Jordaan Burger and Brad Wentzel unpack their audit-ready processes, and how to improve them.
South Africa ranked number one globally for seven years in a row by the World Economic Forum on auditing and reporting standards until 2017, when it dropped 29 places. Today, South Africa now sits at number 49. “We’ve lost an awful lot of ground due to the scandals that have involved many of our big audit players,” Sage Africa, Middle East and Asia Pacific VP of finance Jordaan Burger said during a CFO South Africa webinar on 14 July.
While audits are mandatory for some organisations, Jordaan explained that in still doing them, companies show their stakeholders that they are not afraid of scrutiny by an external party, which gives confidence in the management of the business.
However, the process of becoming audit ready is still an arduous task for most financial teams.
For Douglasdale Dairy CFO Brad Wentzel, there are many complexities when it comes to auditing the milk manufacturer. “Because we take a raw product and make three or four different types of items from that, we need to audit that system quite regularly,” he said.
He explained that, when the finance team does the costings there needs to be an auditor there to make sure they are getting it right. “You need to be clued up with what’s happening around the changes of costing methods, because you might use an activity-based costing system in one place and another costing system in another place.”
And because Douglasdale Dairy sells to a broad customer base which consists largely of cash-based sales, there has to be controls at every single checkpoint. “We have three-way checks on cash and stock daily,” Braid said.
Brad explained that, at Douglasdale Dairy their audit process starts with the budget process. All the decision-makers of the organisation come together in one room and discuss what’s going to happen over the next 12 to 18 months.
Monthly after that, Brad and his finance team run through every single general ledger in the business as if it was a marked audit. “In doing this, we ensure that there is no rubbish sitting in the numbers anywhere and that the numbers are right monthly.”
After that, the finance team looks at the Q2 budget versus the variants and actuals, followed by the H1 and H1, and finally the full year view. “So you’ve gone through the budget process and done 12 to 14 mini audits. When it comes time to audit, the business is so in tune with the quality of the numbers and the rhythm of getting the numbers out on time,” Brad said.
For Brad, the most important thing during the audit ready process is to keep talking to his finance team about what’s happening in the business, even if it is from a capex or opex point of view. “You need to constantly bounce thoughts off each other to ensure that things are being processed right, because then the auditors don’t have to do much.”
Jordaan agreed that communication is a critical part of the audit ready process. “Because Sage is part of a globally listed company, there is a lot of communication that needs to happen between the AMEAP reporting team and the global reporting team, as well as with the auditors.”
He explained that it’s important to have improved communication with your auditors. “If you highlight areas where you’ve had to apply some judgement or estimates before the audits, it’s a lot more efficient than them going through the financials, finding the judgements and only then starting to ask questions.”
Ensuring you are audit ready
As companies that are being audited, the goal is to ensure that the financials of the business present the lowest possible risk of material misstatement. “We want to get this audit done in the shortest period of time, but at the same time make it a pleasant exercise,” Jordaan explained. “We also want to prove that we’ve got a solid control environment.”
In order to achieve all these goals, Jordaan said that integration and automation is key. “Gone are the days where we run revenue recognition excel schedule on one side and bring in the resells monthly with general interest into our accounting system.”
He explained that organisations need to adopt a “do once, use many” attitude, focusing on building dashboards in accounting software that get updated continuously. “Digitise your workflows. If you can demonstrate to the auditor that you’ve got solid approval throughout your process, it’s going to give them a lot more comfort around your control environment and they’re going to spend less time on substantive testing.”
Accounting systems allow you to store the payment history of customers indefinitely. “When you get to things like IFRS9, where there’s an area of judgement, you’re going to have to be able to prove to the auditor why you are saying that you don’t see a significant risk on a certain basis. It’s important to have that information readily available,” Jordaan said.
Accounting and financial tools have also come a long way in automating consolidations. He explained that some audit clients have a complicated excel spreadsheet where they do all of their consolidation and elimination entries, and in some cases, the auditors will do the consolidation all over in their own excel template, because it’s easier to do the whole consolidation from scratch than trying to unpick and understand what the customer has done to get their consolidated financials. With automated consolidations, auditors are easily able to understand and unpack the financials of their clients.
Jordaan explained that Sage provides businesses with these accounting and financial tools to automate their consolidation and provide insights to decision-makers in order to be audit ready when the time comes.
Jordaan said that cloud systems also have a lot of benefits when it comes to audits. “You can provide the auditor with their own access to your accounting system, they can access it from anywhere – which is a good thing in our current remote working environment – or you can limit their access right to read only.”
He explained that the auditor can then drill down from your trial balance into a transaction level, and right down into supporting documents. “It will just make everything a lot easier for you.”
