The first year-end audit is the most stressful, you do not know what auditors want, what they will ask, or how to present what they ask for. Three weeks of advance preparation transforms the experience from chaos to checklist.
Three months before
Engage the auditor: agree fee, scope, timeline, key contacts. Sign the engagement letter. Ask for the audit information request list (audit prep checklist) and start populating the items you have.
Lock the prior year's books fully, no late changes. Run a full bank reconciliation through year-end. Run AR and AP aging at year-end and compare to the year-end balance in your books. Investigate variances early.
One month before
Compile the audit working paper file: opening balances, transactions for the year, bank statements, customer and supplier confirmations (auditor will send these), inventory count records, fixed asset register, depreciation calculations, payroll records, VAT returns, contracts above materiality.
Reconcile the trial balance to last year's audited financial statements. Reconcile each control account (VAT, payroll, fixed assets, inventory) to the relevant subsidiary ledger or schedule. Document every variance with explanation.
During the audit
Auditors typically arrive on Day 1 with a planning meeting. They review the materiality and risk assessment, walk through significant areas, and request initial documents. Day 2 onwards is fieldwork, testing transactions, examining controls, sending confirmations.
Maintain a single point of contact in your team. Channel all auditor questions through that person. Answer factually, in writing where material. Do not over-share, the auditor's job is to ask questions, not to reach conclusions.
After audit
The auditor produces a draft audit report and a management letter. Read them carefully. Discuss any observations or proposed adjustments before signing. Adjustments to opening balances of the next year (if material) need to be reflected in your books before the period is locked.
The management letter highlights internal control weaknesses. Address each one within 90 days and document the remediation. Year-on-year, repeated findings undermine the auditor's confidence and lead to scope expansion.
This guide is general information, not professional advice. For situations that involve specific facts, talk to your accountant, or hire one of ours from the marketplace.