Accounting Yard

Preparing for year-end

statutory audit
A practical guide.

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“Formal education will make you
a living, self-education will make
you a fortune.”

Jim Rohn
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About The “Practical

Accounting Yard
Our goal
▪ To improve the practical
accounting knowledge of
accountants by delivering high
quality practical accounting
trainings and learning initiatives
for free or at very affordable
costs.
▪ Share opportunities (JOBS and
OTHERS) with accountants
through our Telegram Job
Group and LinkedIn Accounting
Job Handle.
guide series”
This study material is one of many
resources from Accounting Yard as
part of her “Practical Guide Series”
primarily focused on helping
accountants get better with their
practical accounting knowledge.
Other useful materials in this series
include (this list is not exhaustive):
➢ Accounting for interest
expense: A practical guide
➢ The basics of deferred tax: A
practical guide
➢ Double entry: A practical guide

▪ We constantly share useful ➢ The expenditure process: A

practical accounting knowledge practical guide
on our various social media
handles including educative ➢ Period-end reporting
video courses on our YouTube
➢ Overview of an external audit
channel and our website
www.accountingyard.com.ng ➢ Accruing for liabilities

Contact us

Please follow Accounting Yard on

our social media handles.

You can reach us on the number

and emails below for any enquiries
about our trainings.

+2347066855973

Our emails:
acctyard@gmail.com
info@accountingyard.com.ng

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Contents
Our people 4

Our learning programmes 5

Introduction 6

Overview of external audit process 6

Top Preparatory steps 7

Proactive preparation of documents 8

Further tips to make the process smoother 10

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Our people.

Israel is a Big 4 trained professional with

over 9 years practical experience in
auditing, taxation & accounting. He is an
experienced ICAN Financial/Corporate
Reporting teacher. He currently teaches
ICAN students at Wyse Associates Ltd.

He has passion for knowledge sharing and

has shared his knowledge through various
write-ups including an IFRS Summary titled
"One Page Summary of each IFRS”.
Israel USIDAMEN

Oladele is a Big 4 trained finance

professional with diverse experience in
FMCG & Retail Industry. He trains
professionals in the use of Microsoft Excel
for accounting, data analysis, & financial
modeling. This he has done for over 6 years.

He has vast experience in the use of

Enterprise Resource Planning (ERP) in
managing general ledger, business process
improvement, and automating routine task.

He loves to impact lives through knowledge

Oladele ODUGBEMI
sharing.

Blessing is a finance professional with 4

years of experience in financial reporting,
budgeting & tax.

She is a Sage Accounting Partner. She has

trained small & medium businesses on Sage
business cloud accounting. She has also
helped several small businesses in different
industries to improve and proffer solutions
to their accounting processes.

In her free time, she watches movies, read

books, and listens to music.

Blessing ASIRIUWA

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Our learning programmes

For each live training, we have two sets of participants – the physical & virtual participants.
All our training sessions hold on only weekends (Saturdays and Sundays). Please visit our
website for further details: www.accountingyard.com.ng

S/N Training Brief description Duration

1. Auditors ▪ Learn how to manage and execute engagements November-
Academy for clients with single and incomplete records. December every
▪ Practical steps of executing an audit by fully year.
applying the Int’l Standards on Auditing (ISAs). Physical: N50,000
Virtual: N20,000

2. Practical Excel for accountants March to April

Accounting ▪ Working with excel shortcuts. every year.
Academy (PAA), ▪ Learn excel functions such as finance functions,
Module 1 IF, AND, OR etc. Physical: N50,000
▪ Advance features: name manager. Tables, Virtual: N25,000
GoalSeek, Data Validation etc.
▪ Advance functions: index and match, small, large,
max, min, sumifs, offset, sumproduct etc.
▪ Data analysis: dynamic charts and graph, pivot

Accounting cycle in practice

• Building charts of accounts
• Creating General Ledgers (GLs)
• Posting common accounting transactions
• Creating trial balance (TB)
• Trial balance mapping
• Introduction to period end closure.
• Demonstration of some accounting schedules
maintained for the purpose of period end (either
month-end or year-end) closure

Preparation of management account

• Income statement with variance analysis
• Statement of financial position
• Statement of cash flows
• Dashboards
3. Practical Financial modelling The whole of
Accounting ▪ Building a start-up model from scratch. June every year.
Academy (PAA), ▪ Investment evaluation
Module 2 ▪ Drivers of financial model. Physical: N30,000
▪ Model assumptions and forecasting methods in Virtual: N15,000
modelling
▪ Building 3-statement corporate model from
scratch.
4. Practical ▪ Computing, assessing, and filing Companies’ August every
Accounting income tax, VAT, WHT and Personal income tax. year
Academy (PAA), ▪ Simplifying deferred taxes using a practical
Module 3 approach. Physical: N20,000
Virtual: N10,000

5. Accounting ▪ Practical accounting quiz competition. Dates would be

League ▪ Possible interview questions for accounting roles. communicated
to our followers

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Introduction
If you’ve been saddled with the responsibility of managing the external audit process from start to
finish (as the key contact person), then, this book is for you. To achieve a smooth audit, you must be
proactive. Here is a good way to approach it:

“The auditor’s request is driven by his or her procedures. Understanding how an audit works (i.e.,
the auditor’s procedures), can make you more proactive.”

So, we will first obtain a basic understanding of how an audit works before we examine how to
prepare for the audit. Key points to be covered:

1. Overview of the external audit process 3. Proactive preparation of documents

2. Preparatory steps 4. Further tips to make the process easier

We have uploaded some resources to a google drive which you may find useful. See link to the
Google Drive: https://tinyurl.com/bdhrcmt4

1. Overview of the external audit process

In recent times, external auditors apply the requirements of the International Standards on Auditing
(ISAs). An audit carried out in accordance with the ISAs can be broken down into three (3) phases as
seen in the image below. The approach adopted is referred to as the “Risk Based Approach” in which
the focus is always on risk of material misstatements (RoMMs) – what can go wrong in the FS.

This book only provides a summary of an external audit exercise. For further details on the overview
of an audit, you can download our free e-book from the Google Drive provided above.

1.1. Planning
At planning, the general objective of the auditor’s work is to achieve the following:

1) Understand the entity’s business, industry, and environment

2) From understanding, the auditor will identify Risk of Material Misstatement (RoMMs)
3) Design audit procedures to address the RoMMs.

The auditor deploys some procedures which are itemized below to achieve these 3 objectives. The
auditor may choose to work from their office or your office. Also, depending on deadlines, a significant
part of the planning procedures can be performed before the end of the year. For example, if your
year ends on 31 December 2022, they can perform their planning procedures in November and/or
December 2022 to manage the pressure and time constraints that are typical after the year ends.

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Key planning activities

S/N Key planning activities
1 Engagement risk assessment
2 Team selection
3 Audit Request List (See google drive for an example – Information Request List)
4 Understanding the entity, its industry and environment
5 Engagement team planning meeting (led by the Partner)
6 Planning meeting with the client
7 Determine materiality
8 Understanding (entity level) internal control (components of internal control under the COSO
Framework).
9 Control testing
10 Analytical procedure (AP)
11 Going concern at planning
12 Assess inherent risks and identify material FS items
13 Design procedures for risks identified

1.2. Execution
The two important audit work that takes place in this phase are:

1. Substantive test (ST): substantive testing is of two (2) types:

a) Test of details: examples include observing year-end stock count, selecting sample(s) from the
population of expense or asset items and inspecting the invoices/supporting documents for
each sample, requesting 3rd party confirmation (bank, customer, vendor), recalculations of
account items to test correctness.

b) Substantive Analytical Procedure (SAP): the auditor uses available data to develop
expectation of account items and compare the expectation with figures in the TB.

2. Evaluate and communicate misstatements/exceptions: during the process of performing the ST,
the auditor may identify material misstatements. They will discuss these misstatements with you
before they propose an audit journal to correct them.

1.3. Reporting
Below are key reporting procedures. More audit journals may emanate from performing these
procedures. For example, the subsequent event test may identify some items that were wrongly
posted into 2023 and ought to have been posted into 2022.

S/N Key reporting activities

1 Going concern evaluation at reporting
2 Subsequent event test
3 Revised materiality
4 Litigation summary
5 Detailed FS Review
6 Management letter
7 Management representation letter
8 Concluding Analytical Procedure
9 Financial statements are signed by the Company
10 Audit report is signed by the Auditor

2. Top preparatory steps (No.4 is very important!)

S/N Preparatory steps
1 Discuss and agree the planned commencement date, timelines, key milestones.
2 Clarify if the audit team would come in for an interim audit before the year ends to reduce
the audit work at year end. Agree interim and year-end audit dates.
3 Ensure that the auditors send their audit request 1-2 weeks ahead of the agreed
commencement date(s). This will give you ample time to prepare ahead.

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4 Whether or not the audit request is received, at the minimum, ensure you have the
General Ledger (GL), Mapped Trial balance (MTB) and well-prepared schedules (including
the supporting documents – bills, invoices, and receipts) ahead of the commencement
date. See google drive for samples of GL and MTB.
5 A well-prepared schedule is complete, accurate and agrees with the respective balance in
the trial balance. For example, a loan schedule shouldn’t only be complete and accurate, it
must also agree with the respective figures on the trial balance! See google drive for
samples of some schedules.
6 Carefully review General Ledger, Mapped Trial balance and well-prepared schedule (GMWS)
vis-à-vis the bills, invoices, and receipts (as applicable) to ensure they’re correct. Make
adequate corrections where appropriate.
7 Once the GMWS are ready (including the supporting documents – bills, invoices, and
receipts), also prepare the other documents itemized in the section 3 below.
8 Plan to send the GMWS to the auditors 1-2 weeks ahead of the commencement date. If
other documents are also available, they can be sent along with the GMWS. To make the
process more orderly, you can send the documents in few batches – maybe 3-4 batches.
9 Inform everyone in the Company ahead of the commencement of the audit.
10 Ahead of the date that the audit team will be physically available, ensure the office space
they will be working from has been cleaned up and well prepared.

Examples of schedules (list is not exhaustive. Few sample schedules have been uploaded to the
google drive)

✓ Property, plant, and equipment schedule ✓ WHT and VAT schedules

(including depreciation schedule)
✓ Fixed asset register
✓ Inventory schedule
✓ Trade receivables & payable schedule
✓ Expected credit loss schedule
✓ Bank reconciliation statement
✓ Investment schedule
✓ Loan schedule (including interest expense
computation)
✓ PAYE computation schedule
✓ Accrual schedule
✓ Revenue schedule (for each source of revenue)
✓ Asset retirement obligation schedule
✓ PPE impairment schedule
✓ Prepayment schedule
✓ Current & deferred taxes computation
schedule
✓ Full year payroll

3. Proactive preparation of documents.

Here are some preparatory documents associated with each audit phase. Note that the list is not
exhaustive.

3.1. Planning
S/N Work area Preparatory document or activities to perform
1 Engagement risk ✓ Memorandum and articles of association
assessment ✓ Group structure (if a group audit)
✓ The ultimate owner (a person and not an entity) of the Company
✓ Shareholding/ownership structure
✓ Governance structure
✓ List of key management staff and brief profile (including Directors)
✓ List of related parties and nature of relationship
2 Team selection ✓ Mapped trial balance (this can help them assign team members)
✓ Prior year audited FS (if the auditors are new) – PDF and excel format.
3 Understanding ✓ All items listed under 1 & 2 above.
the entity, its ✓ General ledger
industry and ✓ Latest Organogram
environment ✓ Approved budget for the year under review
✓ Monthly management accounts
✓ All Company Policies (both financial and otherwise) e.g., HR Policy, Code
of conduct, risk management policy, Procurement policy etc.
✓ Risk register
✓ Standard Operating Procedure (SOP), if available
✓ Approval matrix

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✓ All significant contracts (“that may be of interest to the auditors”)

✓ All correspondences with regulatory authority (“that may be of interest
to the auditors”)
✓ Minutes of meetings – Board and management meetings
✓ Internal audit plan, copies of all internal audit reports issued during the
period (including IT audit).
✓ Summary of ongoing litigation
✓ All bank statements
✓ Key contact person (including someone from the IT Dept)
4 Audit team All items listed above be useful for them ahead of the meeting.
planning meeting

5 Planning meeting All items listed above be useful for them ahead of the meeting.
with the client
6 Materiality All items listed above will provide the required understanding.
7 Understanding ✓ All Company’s policies
(entity level) ✓ Documentary evidence that the policies were complied with. For
internal control. example, if the HR policy states that candidates must be interviewed,
there should mail trails evidencing invites for interview and actual
performance of that interview.
8 Control testing ✓ Supporting documents e.g., invoices, mail correspondences. You may
not know the particular item they will pick as their sample to test your
controls, but ensure you have a process for safely and orderly keeping
your supporting documents.
✓ Schedules for each of all your account items.
✓ Evidence (if available) that a control was performed.
9 Analytical GMWS
procedure (AP)
10 Going concern at ✓ Cash flow forecast covering 18 months after the reporting date
planning ✓ Going concern assessment (engage your auditor for a template)
11 Inherent risks and ✓ Mapped trial balance
identify material ✓ Prior year audited FS (if a new auditor). They would prefer to have this
FS items in excel so that they can understand how the TB flows into the FS.

3.2. Execution
S/N Work area Preparatory documents and activities
1 Substantive ✓ GMWS
testing ✓ Supporting documents (invoices, receipts, mail correspondences etc.).
✓ Invite auditors to perform year-end inventory and cash count. It’s better to first
notify them 1 month before the year end to give them ample time to prepare
ahead. The notification should state the required no. of staff, location(s).
Afterwards, send an invitation 1-2 weeks before the year end and plan travel,
transportation, and accommodation logistics.
✓ Immediately after the year end, request for the auditor to share their preferred
sample of circularization letters with you.

Remember, before giving your auditor the GMWS, you must carefully review!

3.3. Reporting
S/N Key planning activities Preparatory documents and activities
1 Going concern evaluation at See above under documents to be provided at planning
reporting
2 Subsequent event test ✓ Trial balance and General ledger for the subsequent
period. For example, if your year end is 31 December 2021
and the auditors are performing the subsequent event
procedure on the 15 July 2022, prepare GL from 1 January
2022 to 30 June 2022.
✓ Board & Mgt minutes of meeting after year end.
3 Revised materiality ✓ Audited trial balance (TB)
✓ The auditor may wish to request additional supporting
documents depending on the revised materiality.

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4 Litigation summary Schedule of litigation summary showing an evaluation of each

legal case. The evaluation should conclude on whether each
legal case is a provision or a contingent liability or no
exposure.
5 Detailed FS Review ✓ Company secretary/internal legal counsel should review
the Directors’ Report before inclusion in Annual Report.
✓ Draft financial statements after passing all agreed audit
adjustments. Subsequently updated for any review
comments raised by the auditors.
✓ Review audited FS before signing. Auditors can also make
mistakes
6 Management letter Discuss management letter points with auditors as some may
not be valid points. Provide responses to all management
letter points in a professional manner.
7 Management representation This would usually be sent by the auditor. You should review
letter it thoroughly in case there are any specific items that ought to
be excluded based on your understanding. Discuss and clarify
such items with the auditors before signing by the
appropriate parties.
8 Concluding Analytical The audited TB. The auditor already has this.
Procedure

4. Further tips to make the process smoother

S/N Tips
1 Start preparing early. You can make use of prior year’s audit request as a guide to know further
specific items they may need.
2 Do not wait for the year-end to start the reconciliation process. Practice reconciling your books
every month or quarter to ensure the financial reporting is as accurate as possible.
3 Send out circularisation letters (banks, solicitors, vendors, customers etc.) early enough before
commencement date or immediately after year end.
4 You do not need to have everything 100% ready before the audit starts. A key starting point is to
fix your GMWS as explained above.
5 While preparing and reviewing your GMWS, pay close attention to areas where audit adjustments
were passed during the previous audit. Also, pay attention to management letter points raised
during prior year audit.
6 When the audit commences, ensure you check in with the auditors at least once per week to
understand the progress and any bottleneck that may be slowing down the audit.
7 Ensure that the auditors send a list of outstanding audit request at least once every week (e.g.,
every Wednesday evening).
8 Focus more on only material issues. Do not waste too much time on issues that are not material.
(See google drive of sample on determining materiality).
9 Before preparing the FS, you can request if the auditor has a preferred template or an illustrative
guide. The Big 4 audit firms have an annual Illustrative FS which you can use as a guide to prepare
your Company’s FS.
10 Discuss and agree all audit adjustments with the auditor before they are passed.
11 Review all management letter points and discuss them with the auditors before such points are
presented to the management or to those charged with governance. This will enable you avoid
“negative surprises”
12 Close-out meeting with the auditors where you discuss ways to improve for the next audit.

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