Audit Compliance in today's Enterprises (MSME)

It is the time of the year when Income taxes have to be paid and returns filed for the previous assessment year. Auditors will be busy scrutinising the accounts of their clients to determine the state of finances of the company. Depending on the size of the company this exercise is likely to take anywhere between a few days to upto three months. The effort to undertake an exercise that examines every financial transaction to arrive at the state of the finances is humoungous and can take several people from both the Auditor's side and the Client's side. Let us look at the traditional method of conducting an audit and a few ways it can be streamlined to reduce administrative overheads.

In the normal course, irrespective of the size of the company, the audit process is as follows:

1. The client requests for an audit 
2. The Audit firm or Auditor (large enterprises entrust their audits to audit firms while smaller ones work with individual auditors). The Audit firm deputes a "Lead Auditor" as an Audit In-Charge. Individual Auditors conduct the audit themselves. In either case the Auditor visits the client location.
3. The Client hands over the trial balance as of the last day of the financial year and associated vouchers
4. The Auditors commence the audit by assembling a team of personnel who are either qualified Chartered Accountants or people puyrsuing their articleship. This team scrutinises the Vouchers and supporting documents to see if there are any deviations in adhering to the accounting policy and standards.
5. In case of deviations the resolution is arrived at by discussing with Client personnel
6. Based on these discussions correction vouchers are passed either on the corporate Financial Accounting Database or on a shadow database maintained in the auditors office. Since the audit is conducted while a new Assesment Year is in progress in either case it invloves switching the database between the current and previous Assesment years.
7. Once the audit is complete and vouchers have passed the Financial Statements like Balance Sheet, P&L, Cash Flow statement are prepared. 
8. Once the Financial Statements are ready the Annual Report is prepared
9. The Annual Report is then filed with the respective authorities to ensure that statutory compliance objectives are met

Lets look at the overwhelming amount of administrative work that auditors have to carry out during the course of an audit

The first and foremost responsibility is to maintain the integrity of the Trial Balance. The most popular method to hand over a Trial Balance to the auditor, is by sending the Trial Balance in a spreadsheet as an email attachment. This method has security issues. Email attachments can be modified by Trojans and other scripts running on the recipient's browser. This results in the attachment being corrupt and unreadable or in the worst case having having the information modified. Lets assume a young budding chartered accountant in their first year of articleship imports this into an accounting software we can imaging the damage it causes to the auditing partner and their practice not to speak of the number of work hours lost in auditing based on an incorrect Trial Balance.

Auditors usually rely on Spreadsheets and Wordprocessors to churnout Financial Statements. Most of their clients stick to a reporting template that seldom changes. So Auditors copy the set of templates from the previous audit year to a new folder and modify the text and figures that have to be changed. This involves that the Auditor has to read the manually make changes to the template.

During the course of the audit exercise audit personnel pass journal vouchers and generate the Financial Statements for verification. To compare the Financial Statement before and after the vouchers have been passed is usually manual with printed copies of the Balance Sheet and Income Statement. 

Download the CMA Agri Bulletin (Task force on Agro Cost Management of The Institute of Cost Accountants of India)

Challenges in Facilitating Statutory Compliance among Farmer Producing Organisations (pages 71-74)

All these tasks are time consuming and add no meaningful value to the audt. The number of Auditor's in practice in the Indian Sub-continent increases only marginally every year, however the number of companies that come under the audit purview increases exponentially. For example a new nomenclature "Framer Producing Organisation" has been introduced that have the same statutory requirments like that of companies. This means that Auditors can take on new clients if their adminitrative tasks are handled. Our aim is to ensure that Auditors focus on the audit and less on these adminsitrative tasks. With this in mind we have introduced. AB Compliance, a Cloud based application to onboard client for audit, define applicable templates for Financial Statements and conduct an audit. Of course it does generate all the Financial Statements required for the Annual Report.