June 22, 2026
By Sam Bacall, Director
Even though your first audit is often a sign of progress and growth, it can fill a lot of business owners with dread, usually because it involves far more work than future audits.
Your auditor needs to understand your business from the ground up within your first audit and that includes:
We also need to look at opening balances, accounting policies, internal controls and the areas where there is a greater risk of error or judgement.
This is not to make things difficult but to gather sufficient evidence for an audit opinion, particularly as there is no prior year audit file to rely on.
The most common mistake we see is treating the audit as something that begins after the accounts are prepared but by that point, many of the opportunities to make the process smoother have already been missed.
If stock counts, contract reviews, cut-off evidence or key judgements have not been properly documented, the audit becomes more complex than it needs to be.
We recommend involving your auditor before year end, particularly for a first audit.
This is especially important for businesses with complex revenue streams, stock or work in progress, group transactions, acquisitions, new funding, rapid growth or going concern considerations, where issues are far easier to address in real time than after the fact.
Strong reconciliations are a key indicator that your business is ready for audit.
Bank, debtors, creditors, payroll, VAT, stock, intercompany balances, loans and fixed assets should all be fully reconciled, agreed to the accounts and supported by clear evidence before the audit starts.
Unusual or aged items should also be investigated in advance.
For example:
Where reconciliations are incomplete, out of date or unexplained, the audit process inevitably becomes more detailed and time consuming.
Many businesses arrive at their first audit with finance processes that have developed organically as the business has grown.
That’s completely normal, but systems that worked at an earlier stage often struggle once transaction volumes increase, teams expand and responsibilities become less centralised.
From an audit perspective, we are not only looking at the numbers themselves but also at the controls that sit behind them.
These controls help us understand how reliable the financial information is and how much we can place reliance on internal processes.
Common weaknesses we see include:
When these controls are not operating effectively, we are required to carry out more substantive testing.
In practice, that means more detailed evidence requests, larger sample sizes and additional audit time spent verifying transactions individually rather than relying on the system as a whole.
A first audit is therefore an important point to step back and assess whether your finance processes have kept pace with the growth of the business and whether any strengthening is needed before audit fieldwork begins.
Group structures, intercompany balances, director loans and other related party transactions often require more audit focus than businesses expect, as they can have a direct impact on disclosures, risk assessment and how balances are presented in the financial statements.
Any transactions involving directors, shareholders, subsidiaries or connected entities should be clearly identified, properly documented and supported.
Your auditor will need to understand the nature of each relationship, the commercial terms applied, the recoverability of balances and whether the required disclosures are complete and accurate.
Where records are unclear, intercompany balances do not reconcile, or agreements such as management charges and loans have not been formalised, the audit process can slow significantly due to the additional work needed to evidence and clarify these arrangements.
Your accounts may show your final numbers, but when we audit your company, we build the entire thing on the evidence that you provide/we find.
This includes:
The quality and organisation of audit evidence has a direct impact on our efficiency and when documents are spread across inboxes, shared drives, laptops and accounting systems without a clear structure, the audit will inevitably take longer and become more reactive.
Creating a well-organised evidence pack in advance for key balances and judgement areas helps streamline fieldwork and reduces the need for repeated follow-up queries.
Your first audit should never be left until the last minute but when they’re driven by a filing deadline, lender requirement or group timetable, planning backwards is essential to allow time for queries and review.
Delays often occur when it is assumed the audit will finish as soon as the accounts are prepared, when in reality missing evidence or complex issues can extend the process.
That said, early communication is key and any critical deadlines should be shared with your auditor at the outset, not once time pressures have already built up.
In practice, the businesses that cope best with their first audit are the ones that do the unglamorous basics early, not the ones trying to fix everything at the last minute.
My advice is to speak to your auditor before your year end, not after it.
That conversation alone can remove most of the surprises later on and it is far easier to deal with judgement areas, reconciliations and documentation while the numbers are still fresh than to reconstruct decisions months down the line.
Good audit preparation is about making sure controls are understood, related party and group transactions are properly captured, supporting schedules are ready and the finance team knows what evidence will be needed when fieldwork starts.
A first audit will always take effort and, really, it should, because we are forming an independent view of your business.
But it does not need to feel disorganised or reactive.
With early planning and open conversations about the more complex areas, the process becomes far more controlled.
That typically means fewer surprises, smoother fieldwork and less time spent under pressure trying to find information that should have been ready from the start.
Freedman Frankl & Taylor is the trading name of FFT Limited.
Registered in England and Wales, Company number: 04510195
Registered to carry on audit work in the UK and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales
Manchester Accountants
A list of connected firms is available upon request at our registered office.