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How to decide if you need a virtual audit — and how to prepare

Jan 18, 2021

Like other companies this year, Wipfli has had to re-examine several of our procedures, including financial audits

We usually perform audits in person at our clients’ offices. Face-to-face contact helps the auditing process proceed smoothly and reassures clients that we can complete the task without compromising the safety or security of their sensitive information. 

But the pandemic has forced us to meet only online, which has some questioning if audits can just wait until it’s safe to meet in person. 

The answer depends on a few factors: 

  • Do you have a deadline to meet? Most audits have a deadline, especially if you have debt or receive state or federal grant funds. In such cases, you need to complete the audit on time, even if that means doing so remotely.
  • Is the audit for tax purposes? Although the IRS extended filing deadlines earlier in the year, if your audit is related to tax purposes, conducting it virtually is the best option. 
  • What is the purpose of the audit? Audits provide a reasonable level of assurance that your financials are accurate and can help identify weaknesses in the business – which are better found sooner than later. If you don’t have a reporting or application deadline, you might be able to postpone your audit. But don’t wait if concerns about your finances exist.

If you decide against postponing your audit, how can you prepare for a virtual experience that meets (or exceeds) compliance standards and respects current health guidelines? 

Procedures are largely the same, even in the case of a remote or virtual audit. Communication can be more difficult without face-to-face interaction, since problems are generally easier to resolve in person. But with the right planning, technology, and security, a virtual audit can be just as effective as one that takes place in your offices.  

Planning 

Planning brings efficiency to any process. A virtual audit will require some additional time and effort in advance. But the thought you put into these steps can save time during the audit itself.

  • Work backwards. Do you have a deadline by which the audit must be completed? If so, work backward from that date as you plan the project’s phases. If the audit needs to be completed by January 31, plan backwards from that date. 
  • Set (and keep) a schedule. Even if the audit has no official deadline, set specific milestones and stick to them. Without a deadline or dependent event, the auditing process can drag out. People might feel more comfortable rescheduling a Zoom call than they would an in-person appointment, but it’s important to stay on plan. 
  • Plan to scan. If your financial information is available only in hardcopy, build in enough time for the auditor to select the documents and information they need and for you to retrieve, scan and send to the auditor. Coordinate this step well before any scheduled fieldwork or the audit start date, so that everyone has the information they need to begin those tasks. We recommend that you give yourself at least a month for this step, especially if it overlaps with other processes such as preparing 1099’s and W-2’s.. 
  • Check your tech. Both parties will need properly functioning technology to facilitate the virtual audit. For example, you need a way to securely share those documents you scanned (and other electronic information). You’ll also want access to video-conferencing tools. 

Technology

Making sure that you have the practical tools needed to conduct a remote audit is a vital part of the process. At a minimum, plan for the following:

  • A reliable, fast internet connection 
  • A robust cybersecurity solution
  • Video-conferencing tools
  • A way to securely exchange large files 

Although you can communicate and exchange documents via email, granting auditors remote, secure, read-only access to needed documents or accounting software is simpler. If auditors need to look at additional documents, they simply do so without making additional requests.

Speaking of electronic files, this is a good time to consider the switch to filing information electronically, if you don’t already. It makes collecting information for audits much easier and faster. Instead of looking for and scanning a paper copy of an invoice, for example, you can grant the auditor access to an electronic copy.

Video-conferencing tools can help strengthen your relationship with auditors when you’re unable to meet in person. At Wipfli, we like to meet with clients at the beginning of a project, to check in during the auditing period, and again for an exit conference. Using technology to create an element of face-to-face interaction is key to building trust and maintaining a good relationship.

And finally, don’t skimp on safety measures. Hopefully, you already have strong cybersecurity in place. If not, now might be a good time to conduct an IT audit, as well.

What if an auditor must come onsite?

If access or technological limitations make a virtual audit impossible for your company, be sure to plan carefully for the safety of all involved. Map out process and document requirements early to help minimize delays and guarantee safety. For example, you might need to reschedule staff to minimize person-to-person contact during times auditors must be onsite. And be sure you have all necessary documents available in advance, to prevent delays when the audit team is present. 

Are virtual audits here to stay? 

In theory, every step of the audit process can be done virtually without compromising the results. Even inventory observations can be done through video using a smartphone.Exceptions might be the need to count highly valuable commodities, such as diamonds or goods that are easy to counterfeit.

Even in a post-COVID-19 future, virtual audits will likely continue. We expect to see more accounting and auditing standards begin to address virtual work environments and virtual audits moving forward.

Author(s)

Karl A. Eck, CPA
Partner
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