For SMEs in Kenya, preparing for an external audit is all about ensuring that financial records, compliance documents, and internal controls are organized, complete, and accurate. Below is a comprehensive external audit readiness checklist tailored for SMEs:
1. Corporate & Legal Documents
- Certificate of Incorporation and Business Registration Documents
- PIN/VAT Registration Certificates
- Trading licenses or permits
- Memorandum and Articles of Association / Constitution
- Board minutes and resolutions (authorizing key transactions or approvals)
- Shareholder register and ownership structure
2. Financial Records
- Trial Balance for the audit period
- General Ledger with all transactions recorded
- Bank statements (all accounts for the audit period)
- Bank reconciliations for all accounts
- Cashbooks and petty cash records
- Accounts Receivable & Payable ledgers
- Aged receivables and payables reports
- Inventory records (including stock counts and valuation method)
- Fixed asset register (including purchase invoices, disposals, and depreciation schedules)
- Loans & borrowings – agreements, repayment schedules, and balances
- Investment records (shares, bonds, or other holdings)
3. Supporting Documents for Transactions
- Invoices and receipts for all sales and purchases
- Supplier agreements or contracts
- Customer contracts / orders
- Payroll records – salaries, PAYE, NHIF, NSSF, pension contributions
- Expense vouchers and reimbursement claims
- Tax filings – VAT returns, PAYE, income tax, and withholding tax evidence
- Loan agreements and supporting documents for borrowed funds
4. Internal Controls & Policies
- Accounting policies and procedures manual
- Authorization levels for approvals
- Segregation of duties documentation
- Internal audit reports (if any)
- Compliance checklists (for regulatory requirements such as VAT, labor laws, or sector-specific laws)
5. Financial Statements Draft
- Income Statement / Profit & Loss
- Statement of Financial Position / Balance Sheet
- Cash Flow Statement
- Notes to Financial Statements – including related party transactions, contingent liabilities, and any commitments
6. Other Relevant Documents
- Insurance policies for business assets and operations
- Leases / rental agreements
- Pending legal claims or disputes
- Board or management correspondence impacting financials
- Any external valuation reports (property, inventory, or other assets)
Tips for SMEs Preparing for an Audit
1. Organize documents by category – reduces time spent by auditors looking for evidence.
2. Ensure reconciliations are up to date – e.g., bank, petty cash, and supplier statements.
3. Have management available – auditors may need explanations or approvals.
4. Pre-review financial statements – catching errors before auditors arrive saves time and cost.
5. Document estimates and assumptions – especially for provisions, depreciation, or inventory valuation.
Contact us today on tax@aura-cpa.com, call us on 0769 111000 to learn more. You can also visit us at Haven Court, 1st Floor, Waiyaki Way, Westlands, Nairobi.