Financial year end - Common mistakes we see with our clients

A financial year end is always known to add additional stress on any company and their finance teams. Financial statements need to be prepared and, for most companies, these financial statements need to be audited or independently reviewed to add a level of assurance for the users.

As auditors, there are various trends of common mistakes that we have seen with clients. These include:

The companies do not have robust financial controls and systems in place to ensure accurate, timely and complete accounting records.

This includes not preparing reconciliations for all statements of financial position and statements of comprehensive income accounts and not documenting/filing the necessary support for all transactions. This often leads to the finance team not being able to provide the necessary support for certain transactions under review by the audit team as accounting records do not reconcile.

The finance teams do not tend to stay up to date with changes to accounting standards (in this case IFRS or IFRS for SME) and their effective dates.

Changes or updates to accounting standards are ongoing. Keeping track of all the necessary updates, their effective dates and what impact these can have on your company is often overlooked due to the many other pressing matters that require the immediate attention of the finance team. This can lead to financial statements being materially misstated and auditors having to recommend a significant amount of adjusting journals, which in itself creates additional independence and objectivity risks for the auditors. This furthermore also leads to significant delays and overruns during the audit.

The finance departments do not have adequate supervision and reviews in place.

Depending on the size of the finance department within the company, segregation of duties is not always possible to the desired extent. Therefore, the finance manager/head of the department might be responsible for processing certain transactions and not being able to just review the work prepared. This can lead to errors going unnoticed, which could range from a very insignificant impact or a more significant impact on the company depending on the nature of the error.

All the above could lead to an increased audit/independent review fee, adding to the already stressful situation of undergoing an audit/independent review. 

If you are a finance manager/head of the finance department facing the above issues but don’t necessarily know how to implement a solution fit for your department, please feel free to reach out to any of our directors at RSM South Africa to provide the necessary assistance/advice.

Desmari Erasmus

Supervisor: Quality Assurance, Johannesburg

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