How to Survive an Audit and Stay Cool

We had the pleasure of speaking with Derimise Densingh, Senior Audit Manager at Madras Accountancy. He sheds light on the importance of process, discusses regulatory compliance, client collaboration, the evolving role of technology in audits, and offers crucial advice on how to manage oneself during stressful situations. There is a lot to learn, and this should be especially helpful for those who are currently navigating tax season. Let's dive in.

How do audits arise? What factors are involved in an audit based on your experience?Regulatory requirements and internal corporate governance needs are the main reasons for conducting audits. Regulatory audits are mandatory for businesses in certain sectors or above certain sizes to ensure compliance with financial reporting and tax laws. On the other hand, internal audits are initiated by the company itself to identify areas for improvement, manage risk effectively, and ensure the integrity of financial reporting. Several factors can lead to an audit, including the nature of the industry, company size, previous audit findings, and changes in business operations or financial performance.

How can clients best work with a CPA firm during an audit?
Clients can foster a productive relationship with a CPA firm during an audit by maintaining open lines of communication and providing timely, accurate information. It's crucial for clients to understand the scope of the audit, adhere to the agreed-upon timelines, and have a dedicated team to liaise with the auditors. This approach not only facilitates a smoother audit process but also enables the CPA firm to provide more valuable insights and recommendations.

What makes Madras Accountancy different and special regarding the audit process? 
What sets our firm apart in the audit process is our commitment to our people. It's all about the people. At Madras Accountancy, we prioritize the continuous training and long-term retention of our personnel. This ensures that our team not only stays abreast of the latest accounting standards and regulations, but also develops a deep understanding of our clients' industries and specific challenges. This also means our auditors are equipped to provide insights that go beyond mere compliance, adding real value to our clients' businesses. We proactively schedule meetings with the CPA firm to discuss the audit process, address any concerns, and ensure everyone is aligned on expectations and the timeline.

What is the most important thing, or things, to remember during an audit?
During an audit, it is essential to remember the objectives of the process to ensure the accuracy of financial statements and assess compliance with applicable laws and regulations. Keeping this perspective helps companies approach the audit as an opportunity rather than just a compliance exercise. Additionally, it is important to maintain an open and cooperative stance with auditors, as this can significantly impact the efficiency and outcome of the audit.

You seem as cool as a cucumber, are audits stressful even after 10 years?
[Laughs] Yes, they can be stressful, but I don't find them nearly as stressful as I did 10 years ago because of our team and the systems we have in place. If we didn't have the people we have, it would be stressful. Audits, by nature, can still present challenges and induce stress, primarily due to their dynamic nature and the evolving landscape of business and regulation. The key lies in thorough preparation, clear communication, and leveraging the audit as a means to strengthen the business.


Without giving away any trade secrets, are there any key processes you use for audits?At Madras Accountancy, we adhere to a structured set of processes to ensure thoroughness, accuracy, and compliance with auditing standards. We have a comprehensive understanding of the client's business, industry, and audit objectives. This includes reviewing financial statements, risk factors, and internal controls. We establish a formal agreement that outlines the scope of services, fees, timelines, and communication protocols. Secure methods for data sharing and access are implemented to ensure the confidentiality and integrity of financial information.

At the beginning of an audit, we conduct a thorough risk assessment to identify areas of the financial statements that may present a higher risk of material misstatement, either due to error or fraud. This assessment shapes our audit strategy and determines where we direct our efforts.

Another aspect of our process is the testing of internal controls. This involves evaluating the effectiveness of a company's internal control over financial reporting. By identifying any weaknesses in these controls, we can provide recommendations for improvement and focus our substantive testing on areas where the controls may be less effective.

We carry out substantive testing and gather sufficient appropriate audit evidence to support our conclusions and opinions. This may involve various audit procedures such as inquiry, observation, inspection of documents and records, reperformance of controls, and analytical procedures.

Our trained staff document their audit procedures, findings, and conclusions in working papers and audit documentation. Additionally, they assist in preparing a draft audit report that summarizes the findings, conclusions, and recommendations for the client's review and feedback. We also keep the client regularly updated on the progress of the audit, findings, and any potential issues or concerns.

What are the audit and assurance services that you provide?

At Madras Accountancy, we take pride in offering a wide range of audit and assurance services tailored to the specific needs of businesses across various sectors. Our services include audits, reviews, and compilations, ensuring the accuracy and reliability of your financial statements. This process is crucial for organizations looking to establish trust and transparency with stakeholders.

In addition to our standard practices, we specialize in agreed-upon procedures, where our team performs specific tasks on financial information as requested by our clients and other stakeholders. This customized approach allows for flexibility and precision in addressing specific areas of interest or concern.

We understand the importance of looking ahead to the future, which is why we also offer forecasting and projection services. These tools are invaluable for strategic planning and investment decision-making, providing insights into potential financial futures based on different scenarios.

Compliance with government auditing standards, often referred to as the "Yellow Book," is another area of expertise for us. This ensures that organizations meet the strict requirements set by government agencies, providing an additional layer of assurance and credibility.

Our services also cover capital and operating budgets, assisting organizations in effectively planning their financial operations and investments. Through thorough review and analysis of financial statements, we provide deeper insights into financial health and performance.

Internal control reviews are a vital part of our services, aiming to enhance financial governance within organizations. This is complemented by our work in conducting audits for employee benefit plans, ensuring the integrity and compliance of these plans with relevant laws and regulations.

That sounds substantial! Is there anything we didn't ask?
It is! Well, there is the role of technology in modern audits. Technological advancements have significantly transformed audit processes, making them more efficient and enabling deeper insights through better data analytics. 

As new technologies like AI for data analytics become more integrated into the audit process, they promise to enhance our ability to analyze vast amounts of data with greater precision and to identify anomalies or areas of risk more effectively. While we're currently in the testing phase of incorporating some of these technologies, I am optimistic about their potential to transform the audit process. This evolution will allow us to deliver even more value to our clients through deeper insights and more efficient audits.

Any specific processes we should know about? 

We're currently in the testing phase, so we can't say for certain yet. However, as the technology continues to develop, I can definitely provide more information. Based on the progress so far, I anticipate that this will happen sooner rather than later.

Thank you for your time Derimise.

Thank you!