Common Audit Challenges in Small Business Operations
Companies are required to prepare financial statements complying with Financial Reporting Standards in Singapore unless they are dormant. An audit of those financial statements provides a certain level of assurance regarding their reliability. However, audits are challenging to navigate, especially for a small business. Here, we’ll take a look at the common hurdles you may face during audits and how you can overcome them effectively.
What Happens During Annual Audits?
You can expect a flurry of activities and procedures to take place during an audit of financial statements. Auditors will carry out procedures to obtain evidence regarding information contained in the financial statements prepared by companies.
At the initial stage of the audit, the auditor may review your company’s policies, procedures and operations to gain an understanding of your business, system of internal controls and risk factors. Then, they will plan and carry out procedures to obtain evidence regarding the amounts and other information reported in the financial statements. The objective of the procedures is to assess whether there is any material non-compliance with Singapore’s Financial Reporting Standards (FRS) or International Financial Reporting Standards (IFRS), whichever is applicable.
On top of matters relating to finance, auditors may also evaluate internal controls and risk management processes to ascertain their effectiveness in safeguarding assets, preventing fraud and errors, ensuring that all transactions are properly authorised and that they are recorded accordingly.
Once auditing activities conclude, an audit report for your company’s financial statements will be issued.
The Challenges Small Businesses May Face
1. Unfamiliarity with Financial Reporting Standards
Singapore’s financial reporting standards have evolved over the years. They can now be complex and may not be that easy to understand or to apply, especially for standards relating to more complex areas like Revenue, Financial Instruments and Leases. The lack of a good understanding of them may lead to misinterpretation and result in you having to suffer from issues during an audit. The simplest way to mitigate this challenge is to engage the services of an experienced audit firm in Singapore. They specialise in auditing and accounting and will possess the knowledge to advise you on how to get ready for an audit of your financial statements..
2. Lack of Qualified In-House Accounting Expertise
Large corporations usually have dedicated accounting departments with qualified professionals to handle all their financial reports and audits, which helps ensure a smoother audit process. However, small businesses may have to rely on a different type of resource to meet their accounting needs. While this may be seemingly more cost-effective, it may not always be the most efficient way to do things. Having insufficient qualified expertise increases the risk of fraud, errors or other issues that may cause difficulties during audits and to your business.
Additionally, as accountants hold great responsibility to prepare the necessary materials for audits, it’s crucial for you to have someone experienced on hand to make sure that the correct requirements are ready. Negligence in this area can lead to potential audit delays, non-compliance with regulatory requirements and disrupt your business.
To avoid such issues, consider using outsourced accounting services from reputable accounting firms in Singapore. K E Wee & Associates PAC and their affiliates have seasoned professionals who are familiar with audit and accounting processes can help enhance the accuracy and operational efficiency of your audit.
Learn More: How to Differentiate Quality of Accounting
3. Inadequate Maintenance of Supporting Documents.
Companies are required to keep their accounting records for a number of years. Records include documents like bank statements, invoices, delivery orders, shipping documents and others. These records must also be maintained in a way that enables the financial statements to be audited. Under the current business environment, it is easy for businesses to lose records or not have them maintained adequately. In fact, it is common to see that records and documents may not have been properly kept as required under the law.
A lack of proper accounting records will affect an auditor’s ability to carry out the required procedures for him to issue his report. Alternative procedures may be carried out in certain circumstances. However, this may not be possible in all scenarios if the required records are not available. For example, inadequate inventory records may result in an auditor being unable to express his opinion on whether inventories are properly stated in the financial statements.
Fortunately, such issues can be easily resolved with proper accounting systems and procedures to ensure that the required records and documentation are maintained. Whether it’s digitalisation or consulting with an auditor, accountant or company secretary with the requisite knowledge, maintaining the requisite information needed during audits can simplify the process and improve efficiency for the audit.
Accounting standards may not be easy to navigate, understand and apply, especially if you’re new to them or if there is inadequate understanding of the requirements. Knowing how to maintain accounting records in a way to enable them to be easily audited as required under the law may not be that easy. But as they’re crucial to running a successful business in Singapore, these challenges must be addressed. In this case, leveraging the expertise of a reputable audit and/or accounting service in Singapore can be helpful in overcoming these hurdles.
K E Wee & Associates PAC offers various accounting and audit services in Singapore to help businesses like yours comply with regulatory requirements. Get in touch with us today for more information.
