A year-end financial audit may seem like another daunting task on your to-do list, but it doesn't have to be. Beyond compliance, Accounts Payable audits help uncover financial discrepancies, enhance transparency, and build trust with stakeholders.
In this post, you’ll learn about the benefits of carrying out a year-end Accounts Payable audit and the practical steps to take to ensure your audit not only goes smoothly but also acts as a valuable tool for your company.
What is a year-end financial audit?
A year-end financial audit in the context of an Accounts Payable year-end audit is all about digging into the financial records that keep those payables in check. It is an independent assessment of financial documents from your company's AP records.
In most audits, Accounts Payable is a primary focus because it’s very typical for a company to believe its net income is higher due to incorrect recording of end-of-term payables. Accounts Payable teams must meticulously review and analyse vendor data, every transaction, statement, invoice and balance sheet to ensure they are accurate, complete and in line with all accounting guidelines and regulatory requirements. Audit evidence is then submitted to an independent auditor for review and a final decision is made – but a decision on what exactly?
If you're a large publicly held company, it is a legal obligation to submit an independent audit. For smaller, privately owned companies, the year-end audit can be used as an assessment tool for your internal controls and accounting procedures.
Why is a year-end audit important?
Conducting a year-end financial audit is key in Accounts Payable, especially when it comes to Accounts Payable metrics. An AP audit uncovers insights into process efficiency and effectiveness and helps to identify things like duplicate payments or overdue invoices, all while making sure all good internal controls are in place and compliant.
It's a smart process that safeguards the integrity of your Accounts Payable team, processes and the overall financial health of your company. Generally, the accounting principles and governance vary by country, so it’s important to know what to expect from the audit in your region.
Let's look at some of the key factors to conducting a year-end Accounts Payable audit.
Building strong financial records with optimised master vendor data management
Implementing master vendor data controls for accurate and secure management of vendor information.
Master vendor data management is crucial for a smooth and efficient AP audit. Year-end has traditionally been the time for cleansing Master Vendor Files {(MVF) and there is good reason to kickstart this process before the start of the next financial year.
Keeping data valid, accurate, complete and consistent helps to decrease legal and financial risks – such as fraud, reduces the number of duplicate payments and improves vendor relationships. Having clean master vendor data is also key for businesses operating within highly regulated environments.
Maximising profit with year-end statement reconciliation
Audits involve a thorough review of supplier statement reconciliations at the year-end and are crucial for spotting any financial statement errors. By regularly reconciling supplier statements ‘in-the-moment’, you will save a huge amount of time, as well as millions in savings.
By automating your Accounts Payable processes like supplier statement reconciliations, you can increase efficiencies, eliminate errors and save your payments team valuable time so they can focus on more enjoyable tasks.
Reconciling supplier statements with internal records
By reconciling supplier statements with internal records, your company's Accounts Payable balances will be accurate, complete and aligned with the vendor's information.
Using Xelix’s Statements module, you can fully automate this process - from extracting the statement data, comparing it to the general ledger and investigating the differences to responding back to the vendor.
Not only that, it aids in maintaining accurate financial records and supports the overall integrity of the company's financial reporting and the audit process.
Identifying and resolving discrepancies or errors
Statement reconciliation helps you to identify discrepancies or errors before the payment run, which can stop overpayments and/or unrecorded liabilities. By automating and being proactive with supplier statement reconciliations, your financial reporting will be more accurate. In turn, your year-end Accounts Payable audit will become more straight-forward.
“We’ve always had to manually re-reconcile suppliers the auditors chose. It would take us a long time to work through. With Xelix, you choose your supplier and reconciliation date, and it does it automatically for you. Plus, we can give the auditors direct access. It saves us so much time.
Before using Xelix, the AP audit process typically took around two to three months. With Xelix, the process is complete within two weeks,”
said Suzanne, AP Manager at retailer – Mole Valley Farmers.
Read more on this AP audit success story and how Xelix helped them achieve an 40% increase in productivity or have a look at all our customer stories at a glance.
If your Accounts Payable team is finding numerous errors during the year-end audit, it can be a massive headache and even more work to rectify.
Detecting duplicate invoices before it's too late
A duplicate payment or a duplicate invoice is an additional payment that a company pays to a vendor for the same purchase of goods or services. They can occur for many reasons, including human error, ERP/P2P system glitches, or messy master vendor data.
When it comes to your year-end Accounts Payable audit, duplicate payments/invoices majorly affect accuracy and can misrepresent the financial health of your company. They can also be a warning sign of poor internal controls and a call for your AP team to review processes.
Our Transactions module accurately and automatically flags any errors (and at-scale) before the pay run, saving you the reporting and recovery pain when it comes to your year-end Accounts Payable audit.
How to avoid costly recovery audits
Recovery audits are often an easy option for fixing AP payment errors - but they don't solve the fundamental process issues and are usually very costly. Preventing payment errors in the moment with Xelix is much more efficient.
How does Xelix' proactive payment audit work?
Xelix checks information in your ERP system and analyses transactions on your ledger before the pay run, enabling you to rectify issues before payment is made. So, by the time you get to your year-end audit, you'll have very little work to do and can wave goodbye to reactive recovery audits.
Fraud prevention and detection
Implementing better AP controls to prevent fraud
As we've seen, implementing tighter controls on your accounting procedures can hugely benefit your bottom line. Not only should your controls detect invoice errors and prevent overpayments, but they should also act as a barrier to both prevent and detect fraudulent behaviour.
Fraud has a huge impact on your business, from affecting your financials to damaging your reputation and trust with stakeholders.
Using AI, Xelix' Transaction module surfaces suspicious activity in real-time, so your year-end audit is only dealing with legitimate payments.
Ensuring financial statements comply with relevant regulations
Similarly, audits will uncover whether your financial statements are compliant too. This means that they are free from errors, fraud or misinformation. Making sure that your financial statements and transactions are recorded accurately will lower the risk and ease the audit procedure.
An auditor will follow your audit trail to explore the path of all your transactions, and then assess whether the correct accounting procedures were used. Automating AP processes will aid your audit trail, boosting efficiency for this part of the audit.
Compliance with regulatory requirements
Understanding Accounts Payable standards and guidelines
Before carrying out your year-end Accounts Payable audit, it’s crucial to understand all standards and guidelines that your Accounts Payable records must comply with. These vary from country to country. For example - Generally Accepted Accounting Principles (GAAP) in the US or International Financial Reporting Standards (IFRS) in the UK. Maintaining compliance with the necessary regulations is vital for passing an audit and shouldn't be overlooked. Standards are often being updated, so make sure you are regularly checking your compliance.
Ensuring financial statements comply with relevant regulations
Similarly, audits will uncover whether your financial statements are compliant too. This means that they are free from errors, fraud or misinformation. Making sure that your financial statements and transactions are recorded accurately will lower the risk and ease the audit procedure.
An auditor will follow your audit trail to explore the path of all your transactions, and then assess whether the correct accounting procedures were used. Automating AP processes will aid your audit trail, boosting efficiency for this part of the audit.
Choosing a competent external auditor
Finally, to complete your year-end Accounts Payable audit, you need to employ a third-party external auditor – they’ll give an independent and objective assessment of your company's financial statements.
It’s key to establish clear communication and expectations with the auditor to align the objectives of the audit and make sure it’s as efficient as possible. You’ll also be able to allocate your team and resources where they’re required. Good communication between your company and the auditor makes both your lives easier – a win-win.
How to optimise your Accounts Payable audit process
Whether you like it or not, you will need to carry out that dreaded Accounts Payable audit. So, why not make it an efficient and replicable process? Perhaps even… enjoyable?
Key points to consider when optimising your process include:
- Understanding the audit process and timeline to make sure you are on-track to deliver the necessary statements and reports, and allocating team resource to the external or internal audit – dependent on your setup
- Collaborating with the audit team and providing necessary information will lead to a more efficient and higher quality audit, beneficial for both the auditor and your company
- Quickly giving access to documentation and financial reports creates transparency with the auditor
- Automation can ease the painful preparation for your year-end audit, from vendor statement reconciliations to identifying duplicate payments in the moment. Xelix's platform uses AI to make AP processes more effective and more efficient, and has proven to improve team morale by making the jobs AP team hate, easier.
Next steps in your year-end Accounts Payable audit
So, you've picked an external auditor and established clear expectations and timelines for the audit. What's next? You'll need to establish an audit committee internally to oversee the audit process and answer any questions or actions the auditor may have. The auditor may come back with recommendations, deficiencies or findings for you to address, so the audit committee can be on hand for this. Also, the audit committee and management will review the audit report together.
Finally, an audit review happens one year later to make sure all the recommendations and findings have been taken on board, and the desired outcomes have been met.
A year-end audit is a huge undertaking which can't be avoided and shows the impact of a well-functioning Accounts Payable team - a nice win for the team's reputation when done right!
In summary
Preparation is key for a successful year-end Accounts Payable audit. Making sure your financial statements and reports are accurate and compliant throughout the financial year will lessen the year-end audit anxiety. Applying automation where possible is key to this. Xelix's Accounts Payable Control Centre does most of the heavy lifting for you, allowing your team to focus on strategic, meaningful tasks throughout the year and at year-end.
If you ‘d like to see the Xelix platform in action, get in touch with our team ahead of your year-end accounts payable audit. Even one month out from audit time, Xelix can turn things around.
