What to Expect During an External Audit: A Step-by-Step Overview

Preparing for your first external audit can feel daunting, especially for private companies and SMEs in Quebec. But knowing the stages ahead of time will make the process far more manageable. In this guide, we break down the audit journey into ten clear steps – from the initial planning meeting to the post-audit debrief – with practical examples relevant to Montreal businesses. Each section ends with a brief “How This Helps” summary to highlight the value of that stage to your company. Let’s dive in.

1. Initial Planning Meeting and Engagement Letter

Every audit begins with a kickoff meeting between you and the audit firm. This initial planning meeting is where the auditors introduce their team, learn about your business, and set expectations for the engagement. Key topics include your company’s operations, year-end date, any significant events during the year, and timelines for fieldwork and reporting. It’s also when you’ll discuss logistics (e.g., whether auditors will work on-site at your Montreal office or remotely) and identify a primary contact on your side (often your controller or finance lead).

One critical outcome of this meeting is the audit engagement letter. Think of it as a formal contract for the audit. The engagement letter spells out the audit’s scope, objectives, the period to be audited, and each party’s responsibilities audit.ucdavis.edustrauss.ca. It also covers important details like deadlines, fee arrangements, and the applicable financial reporting framework (for example, ASPE – Accounting Standards for Private Enterprises – if you’re a Canadian private company). Essentially, the engagement letter ensures everyone is on the same page before any audit work begins. As one resource puts it, “a well-structured audit engagement letter is a safeguard, setting clear expectations on scope, responsibilities, and fees from the start.”financial-cents.com In Quebec, you may also clarify language requirements at this stage – for instance, if your audited financial statements and report need to be issued in French to comply with local regulations.

Importantly, do not allow fieldwork to start until you’ve signed the engagement letter. Signing it formalizes the arrangement and triggers the audit to proceed. This document protects both you and the auditor by preventing misunderstandings. It’s the foundation of a smooth audit process.

How This Helps: The planning meeting and engagement letter lay the groundwork for a successful audit. By openly discussing your business and agreeing on terms upfront, you eliminate confusion and “scope creep” later onfinancial-cents.com. Everyone knows what to expect: which statements will be audited, who will do what, and by when. This early clarity builds trust with your auditors and gives you confidence that there won’t be surprises – or extra fees – down the line. In short, you’re starting the audit on the right foot with a clear roadmap and mutual understanding.

2. Understanding the Scope of the Audit

After the kickoff, it’s crucial to clearly understand the scope of your external audit. Scope means exactly what the auditors will examine and to what extent. This can include the specific financial statements (e.g. your annual balance sheet, income statement, and cash flow statement for the year ended December 31st) and any particular focus areas or regulatory requirements. The engagement letter you signed will formally define the audit’s purpose, objectives, and scope audit.ucdavis.edu. In other words, it answers: What is being audited, and why?

Audits can vary depending on your industry and circumstances. For example, a manufacturing SME in Montréal might have inventory valuation as a key focus, whereas a tech startup might have revenue recognition under the microscope. Knowing the audit scope upfront allows you to prepare accordingly. Is the auditor just looking at financial figures, or also testing compliance with certain laws or grant conditions? Are they auditing just the parent company, or subsidiaries as well? Clarity here means you won’t waste time preparing items that aren’t needed, and you won’t be caught off guard by the auditors scrutinizing an area you weren’t ready for. One guide describes it well: “Audits vary depending on the regulatory body, industry, and areas of focus... Knowing what will be scrutinized enables your business to gather the necessary documentation and ensure internal processes meet the audit’s requirements.”bgsf.com

In practical terms, understanding scope also means confirming the financial reporting framework you use (ASPE or IFRS for private companies in Canada) and the period under audit. For a first-year audit, note that auditors might need to look at opening balances from the prior year to compare and establish starting figures calvettiferguson.com. So if 2025 is your first audit year, be prepared to answer questions about 2024 as well. Additionally, discuss any limitations or exclusions now – if there are areas not being audited (for instance, maybe the audit excludes a very minor subsidiary or a specific transaction), that should be clear. Remember, the scope defines what the audit covers, and by extension, what the auditor’s opinion will speak to.

How This Helps: Scope clarity means no surprises. When you and the auditors both understand the boundaries of the audit, you can focus your preparation efficiently. You’ll gather only the relevant records and not sweat unrelated details. This targeted approach saves you time and ensures the audit stays on track. It also prevents misunderstandings – for example, a client might mistakenly think the auditors will also prepare their tax return or evaluate business operations broadly, which is outside the scope of a standard audit. By nailing down what’s in scope (and what isn’t) early on, you set realistic expectations. Ultimately, this leads to a smoother audit where everyone is aligned on the objectives, and it increases the likelihood of a clean audit report that addresses exactly what you need.

3. Preparing and Submitting the PBC (Prepared-by-Client) List

With the scope defined, your next major task is handling the PBC list, which stands for “Prepared By Client.” Shortly after planning, your auditor will provide a PBC request list – essentially a detailed checklist of documents and information for you to gather. “An audit request list, or provided-by-client list (PBC list), is a list of items an auditor needs to execute an audit.”suralink.com In plain terms, it’s homework for your team. The list can be extensive for a first-time audit, but don’t be intimidated; it’s basically the roadmap of everything the auditors want to see.

Typical items on a PBC list include most of the financial records and backup that underpin your financial statements. Here are some common requests (for a Quebec SME example, assume a fiscal year-end audit):

• Financial Statements & Trial Balance: Your preliminary year-end financial statements and the detailed trial balance (a list of all accounts with their end balances).

• General Ledger Details: An export of all transactions in your accounting system for the year, and any key journal entries or adjustments made.

• Bank Statements and Reconciliations: All bank account statements for the year and the final bank reconciliation as of year-end (e.g., Dec 31). Auditors often also ask for a bank confirmation (a third-party verification of your balances).

• Supporting Schedules: Detailed schedules for significant accounts. For example, an accounts receivable aging report, an inventory listing, accounts payable aging, fixed asset register (with additions and depreciation), loan amortization schedules, etc. Every number on the balance sheet should have support. (This can include tax-related schedules too, like a GST/QST sales tax reconciliation or your income tax provision working papers.)

• Major Contracts and Legal Documents: Copies of important agreements such as lease contracts, loan agreements, major customer or supplier contracts, incorporation documents, and board meeting minutes. Auditors review these to ensure your accounting (e.g., revenue recognition or lease accounting) aligns with the contracts’ terms mackisen.com.

• Internal Control Documents (if any): If you have organization charts, process documentation, or internal policies, the auditors may request them to understand your procedures. Don’t worry if you lack formal documentation – you can instead be prepared to walk them through your processes (see Section 5).

The PBC list might be sent via email or through the auditor’s secure portal. It’s a lengthy to-do list, but you can tackle it systematically. Assign each category to a team member – perhaps your bookkeeper handles bank recs and invoices, your controller compiles the financial statements, and your HR manager provides payroll records, etc. Creating a structured folder (cloud-based or on a drive) with subfolders (Cash, Receivables, Payables, Equity, Legal, etc.) mirroring the PBC list can help keep things organized mackisen.com. In Montreal’s bilingual environment, note that you can provide documentation in French or English – reputable auditors here are used to working in both languages.

Begin gathering items immediately upon receiving the list. Some items may take time – for instance, obtaining a lawyer’s letter about any pending legal claims, or waiting on bank confirms. Start those early. If anything on the list is unclear, ask your auditors for clarification rather than guessing. For example, if the list says “list of all significant agreements,” you might ask what they consider “significant” if unsure. It’s better to clarify now than scramble later.

Real-world tip: One Montreal startup founder recalls frantically searching emails for a major client contract during the audit, which slowed things down. He later realized the PBC list had requested “all significant customer agreements” – had he prepared it in advance, the audit would have been quicker. The lesson: take every PBC item seriously. Even if it means chasing down documents from third parties (your bank, your lawyer, an external accountant), do it ahead of time.

Finally, keep communication open. If you’re struggling to get a document (say, a confirmation from a customer), inform the auditor – they might have alternate procedures. But strive to have as much as possible ready by the time the audit fieldwork begins.

How This Helps: The PBC list transforms the daunting task of audit prep into a clear checklist. By diligently gathering each requested item, you turn a potentially chaotic scramble into an organized project. It ensures you compile all essential records upfront, which in turn drastically reduces the time auditors spend hunting for info (and the less time an auditor spends auditing, the less the audit costs you suralink.com). In short, a complete PBC package means auditors can hit the ground running, which leads to a faster, smoother audit. Your company comes across as organized and proactive – setting a positive tone and often even leading to lower audit fees or fewer follow-up queries. It’s a prime example of “prepare now to save headaches later.”

4. The Audit Fieldwork: What Auditors Do and How Long It Takes

With your documents prepared, the auditors will commence fieldwork – this is the core of the audit process. Fieldwork is when the audit team actually digs into the materials you provided, performs tests, and asks a lot of questions. Traditionally, fieldwork meant auditors physically coming on-site to your office for a period of time. Nowadays, especially for tech-savvy firms in Montreal, much of this can be done remotely via secure data sharing, but often there’s still an “on-site” element (or at least face-to-face meetings) for a first audit.

What do auditors do during fieldwork? In a nutshell, they gather evidence to verify the numbers in your financial statements. They might follow up on the PBC documents with targeted requests – e.g., “Please provide the invoice for this $50,000 equipment purchase” or “Can you explain why accounts receivable increased so much in June?”. Auditors will test transactions, confirm balances, and evaluate your accounting processes (we’ll cover specific tests in the next section). Fieldwork is iterative and can be intense: expect daily interactions or status updates. Especially in a small business, the auditors will be working closely with your team, asking for clarifications or additional support as they encounter items in your books.

How long does fieldwork last? It varies by company size and complexity. For many small to mid-sized businesses, the main fieldwork visit might last one to three weeks calvettiferguson.com. For example, an audit team might be at your office for two weeks examining everything, then spend a third week off-site finalizing their review. First-year audits tend to take longer than subsequent audits because the auditors are learning your business and may need extra time for things like establishing opening balances calvettiferguson.comcalvettiferguson.com. In total, from kickoff to final report, a first audit might span 2–3 months of calendar time (not full-time effort every day, but elapsed time including waiting for info and scheduling meetings)business.com. The timeline also depends on your responsiveness – one guide notes that if you promptly provide a complete PBC package and respond to follow-up questions within a day or two, fieldwork can wrap up in as little as 2–3 weeks, but delays in providing key information will stretch the schedule (and potentially increase costs)business.com.

During fieldwork, auditors usually start with an entrance meeting (or kickoff call) to reconfirm the plan and introduce their on-site team to your staff. They’ll then dive into testing (Sections 5 and 6 cover the types of testing). They might also hold brief status meetings every few days to keep you in the loop on progress and any issues arising. Especially for a first audit, anticipate that auditors will have lots of questions as they familiarize themselves with your accounting system and records. It’s normal – just be as available and transparent as possible. If you’re a Montreal company with bilingual staff, note that auditors here often speak both French and English; you can interact in whichever language is more comfortable for the team when clarifying things.

Make sure key personnel are available. Fieldwork will require time from your team, not just the finance folks. For instance, auditors might need to talk to your warehouse manager about inventory counts or ask your sales director about how contracts are handled. If those people are on vacation or unresponsive, the audit can stall. Many companies underestimate this: your employees will need to juggle their regular duties with audit support. Plan for this by temporarily lightening other workloads if possible, or bringing in temp help for routine tasks. The smoother you cooperate during fieldwork, the quicker it concludes.

How This Helps: Fieldwork is where the audit “rubber meets the road” – it’s intensive, but it’s what provides assurance that your financial statements are reliable. By understanding what happens during fieldwork, you can better support the auditors and avoid unnecessary delays. When done efficiently, this phase gives you a thorough check-up of your finances in a relatively short time frame. Instead of an audit dragging on for months due to unanswered queries or missing info, you’ll get it done and dusted promptly – which means you can move on to other business sooner. A well-managed fieldwork phase also builds credibility: it shows lenders or investors that you can undergo an audit without major hiccups. In summary, efficient fieldwork = a robust audit result delivered on schedule, with minimal disruption to your operationsbusiness.com.

5. Interviews and Internal Control Assessments

Auditors don’t just look at numbers; they also want to understand how those numbers are generated. This is where interviews and internal control assessments come in. Early in the fieldwork, auditors will spend time talking to management and staff about your processes and controls. They might ask questions like: “How are sales transactions initiated and recorded?”, “What is the process for approving expenses?”, “Who has access to the accounting system and how are entries reviewed?”. These discussions help auditors gauge the reliability of your company’s internal controls – the checks and balances that ensure accurate financial reporting.

For small businesses, especially first-time auditees, this can feel a bit informal. Perhaps you don’t have fancy written policies or a dedicated internal audit team – that’s okay. The auditors will likely do walkthroughs of major transaction cycles. For example, they might pick one sample sales transaction and ask you to walk them through it from start to finish: from the customer’s purchase order, to issuing an invoice, to recording revenue, to collecting payment and issuing a receipt. Similarly, they might walk through a payroll cycle or an inventory purchasing cycle. During these walkthroughs, they’ll ask who does what at each step (segregation of duties), what records are used, and how errors or exceptions are handled.

Be prepared for interviews with key personnel beyond just finance. Auditors often talk to folks like your sales manager (to understand revenue recognition and any sales incentives), operations or production managers (especially if you have inventory – how do you count and safeguard it?), and HR or payroll staff (to understand wage recording and related liabilities). In a Quebec context, if your company benefits from any government programs or tax credits (for example, SR&ED credits or an Investissement Québec subsidy), auditors might ask the project lead about compliance with those requirements too. These conversations help them identify any risk areas or unusual transactions. Remember, the auditors are not there to judge your employees’ performance – they’re evaluating processes. Encourage your team to answer questions honestly. If an auditor asks, “How would you know if an invoice was missing?” it’s fine to say, “Currently we might not catch it immediately,” if that’s the truth. Auditors appreciate candor; if they find a weakness, they’ll simply note it and likely provide a recommendation to improve.

In assessing internal controls, external auditors in Canada follow professional standards that require them to report significant deficiencies or material weaknesses to management fmdcpas.com. This typically happens in the post-audit management letter (see Section 10). So, these interviews are partly to identify any such control issues. Common things they look for: lack of segregation of duties (especially common in a small company where one person might do it all), absence of approvals for major expenditures, or IT controls like proper backups and password protections. Don’t be surprised if an auditor asks for a tour of your facilities or to observe certain processes – e.g., observing an inventory count or watching how invoices get processed. Observation is a form of audit evidence too.

For Montreal and Quebec-based businesses, note any cultural or language nuances in your processes. For instance, if certain documents (like supplier invoices or customer contracts) are in French, the auditors may ask someone to translate key parts if they’re not fluent – bilingual auditors are common here, but not guaranteed, so be ready to explain things in English if needed. Conversely, if the audit team includes Francophone members and your team is more comfortable in French for certain technical discussions, go ahead and converse en français – what matters is clear communication.

How This Helps: These interviews and control assessments might feel time-consuming, but they pay dividends. First, they give the auditors critical context to interpret your financial data correctly – understanding your operations means fewer misunderstandings and a more tailored, efficient audit. Second, it’s an opportunity for you to gain valuable feedback. When auditors examine your controls, they often spot gaps you might not see day-to-day. Maybe they find that too few people are involved in authorizing payments, or that your inventory tracking could be tightened. Identifying these issues is the first step to fixing them, which can save your business from errors or even fraud down the line. Lastly, showing the auditors that you run a transparent operation with a culture of accountability builds trust. It can even lead to a smoother audit opinion (since strong internal controls can reduce the amount of detailed testing auditors need to do). In short, by engaging openly in this phase, you set your company up to not only pass the audit, but also to improve internal processes for the future.

6. Testing Key Accounts and Transactions

This is the heart of the audit: substantive testing of your financial accounts and transactions. After understanding your business and controls, auditors will perform a series of tests to gather evidence that the numbers on your financial statements are correct. They focus on “key accounts” – typically those that are large, risky, or complex. For most companies, key areas include cash, accounts receivable, inventory, accounts payable, revenue, and expenses. Let’s demystify what auditors actually do to verify these.

Auditors use a mix of techniques, often categorized by the acronym COAT: Confirmation, Observation, Analytical review, and Testing of details. Here are some common methods:

• Confirmation letters to third parties: Auditors frequently send confirmations to outside parties to verify balances. For example, they will likely send a confirmation to your bank to confirm your cash balances and any loans (the bank replies directly to the auditor). They may send confirmations to your customers to verify that accounts receivable balances are real and owed, or to your suppliers to confirm accounts payable 415group.com415group.com. If you have a legal firm on retainer, they might send a letter to your lawyer asking if there are pending lawsuits not accounted for. These confirmations provide independent evidence of your figures.

• Vouching to source documents: Vouching means checking transactions against original documentation 415group.com. For revenue, an auditor might take a sample of sales entries and trace each one to a customer invoice and shipping document to ensure the sale actually happened and was recorded in the correct period. For expenses, they might pick a sample of large purchases and inspect the vendor invoices and proof of payment. The idea is to verify accuracy and occurrence – that each recorded transaction is backed by real evidence.

• Physical observation: For tangible assets like inventory and fixed assets, auditors may physically observe them. They might attend your inventory count (or even conduct a test count of certain items on their own) 415group.com. If you have a warehouse in Laval, don’t be surprised if an auditor visits to observe the counting process and spot-check some items. For fixed assets, they might ask to see a piece of equipment from your asset list (e.g., verify that a truck on the books actually exists and perhaps check its VIN or license plate).

• Recalculation and analytical procedures: Auditors will independently redo certain calculations to check accuracy 415group.com415group.com. For instance, they’ll recalculate depreciation expense based on your asset schedule, or recompute the interest on loans to see if your recorded interest expense makes sense. They also perform analytical reviews: this could be as simple as plotting your monthly sales to see if any month looks anomalous, or comparing your gross margin percentage to last year’s to flag unexpected changes. Significant discrepancies might prompt further investigation.

• Sampling: Importantly, auditors usually do not test every single transaction – they use sampling methods. For example, rather than check all 5,000 expense entries, they might select a random sample of say 100, focusing more on high-value or high-risk items. Audit sampling is a whole science in itself, but rest assured the sample is designed to be representativepcaobus.org. If the samples have issues, auditors may expand testing; if not, they gain confidence to generalize to the rest.

Throughout testing, auditors document their findings in work papers. If something doesn’t tie out, they will bring it up to you. For example, if a confirmation from a customer comes back saying “we only owe $8,000” but you recorded $10,000, the auditors will investigate that difference (maybe it’s a timing issue or an error that needs adjustment). Expect lots of queries like “please explain this variance” or “we need support for this journal entry on March 15th.”

Some tests are done at year-end, others “roll forward” interim work. Sometimes auditors do an interim visit before year-end to test controls or do preliminary transaction testing, then update it at year-end. For a first audit, though, most work will likely be concentrated after your books for the year are ready.

Let’s consider a local flavor: Suppose your Montreal-based company deals with multiple currencies (USD and CAD). Auditors will check that foreign exchange translations are done correctly – for instance, they might test a USD revenue transaction by verifying the exchange rate used and that it was converted to CAD properly in your books. If your company received a government COVID-19 subsidy or a Quebec tax credit, auditors will check the calculations and eligibility to ensure the amount recorded is correct. These are examples of key transactions unique to the context that auditors won’t overlook.

Also, if the auditors found control weaknesses in Section 5 (say, lack of segregation of duties), they might do more extensive testing in that area to compensate. For instance, if only one person handles billing and collections (a potential fraud risk), the auditors might send out more receivables confirmations or do deeper cut-off testing around year-end to be sure sales aren’t misstated.

How This Helps: While it can feel intrusive to have auditors poking around in your transactions, this rigorous testing is exactly what gives an audit its value. By the end of it, you’ll have a high level of assurance that each major account (cash, sales, payables, etc.) is accurate and free of big errors. This phase often uncovers mistakes you might have missed – maybe a mis-recorded invoice or an overlooked accrual – so you get to correct them before finalizing your financials. Ultimately, the testing of key accounts is what provides credibility to your statements: when a lender sees an audited balance sheet, they know an independent CPA has confirmed cash balances with the bank, verified receivables with customers, checked invoices for expenses, and more 415group.com415group.com. That peace of mind for stakeholders is a direct result of the detailed testing done here. In short, the thoroughness now means confidence later – for you and anyone relying on your financial reports.

7. Drafting Financial Statements and Adjustments

As the fieldwork testing winds down, the focus shifts to finalizing the financial statements and booking any adjustments that arose from the audit. This stage is a collaborative wrap-up where the numbers get polished and confirmed.

First, let’s talk about audit adjustments. Despite your best efforts in closing the books, it’s common for auditors to identify some misstatements or proposed adjustments. These could be anything from a small reclassification (say, moving an amount from one expense category to another for proper presentation) to a significant correction (perhaps accruing an expense that was missed, or adjusting inventory values). The auditors will present these adjustments to you, often in a document called an “adjusted journal entries” schedule mackisen.com. You, as management, will review and approve these before they’re entered. Typical adjustments in first-time audits include things like additional depreciation, corrections to income tax provisions, allowance for doubtful accounts tweaks, or booking of liabilities you hadn’t recorded (e.g., an unpaid invoice that surfaced during audit). Don’t be discouraged by adjustments – they’re learning points. As one source notes, the list of adjustments “shows where your internal accounting fell short” so you can improve those areas going forward mackisen.com.

Once adjustments are agreed upon, they get posted to your accounting system, and voilà – you have revised, corrected trial balances to form the basis of the audited financial statements. In many SME audits, the audit firm assists with drafting the financial statements (especially the notes to the financials), since private companies may not have in-house expertise in financial statement presentation under GAAP. In other cases, your controller might draft the statements and the auditors then review and tweak them. Either way, there’s an iteration process: the auditors ensure that the financial statements are now fully compliant with accounting standards (Canadian ASPE or IFRS, as applicable) and reflect all the findings from the audit.

The financial statements package will include: the balance sheet, income statement, statement of retained earnings/equity, cash flow statement (if required for your entity), and notes to the financial statements. The notes are important – they disclose your accounting policies and additional details (e.g., debt terms, lease commitments, related party transactions). Auditors will likely fine-tune the notes. For example, if you’re a Quebec company with a new bank loan, the notes would detail the loan terms and any covenants; the auditors make sure that info is properly described.

During drafting, there’s often a bit of back-and-forth. The auditors might send you a draft financial statement for review. This is your chance to sanity-check everything. Do the numbers tie to what you expect (after adjustments)? Are the narratives factually correct? Perhaps you notice a nuance – e.g., the draft note says “the Company is incorporated under the Canada Business Corporations Act” but you’re actually incorporated in Quebec; you’d point that out for correction. Also, discuss with auditors any presentation choices. For instance, you might ask, “Can we combine these two expense lines for simplicity?” – auditors will advise what’s acceptable.

It’s worth noting that while the auditors assist, the financial statements are ultimately management’s responsibility. You will be asked to approve them and take responsibility in the management representation letter. But the auditors’ expertise ensures they meet professional standards.

By the end of this stage, all material misstatements should be corrected. If, for some reason, you choose not to correct something (imagine the auditors found $1,000 of extra expense that you decide isn’t worth adjusting because it’s immaterial), the auditors will note it in their records. However, for a clean opinion, generally all significant issues need to be resolved.

One more local twist: after adjustments, if your net income changed significantly, consider any tax implications. An audit adjustment might reveal, say, unclaimed expenses that reduce income – you might need to amend your tax return or at least note the differences between your audited books and what you filed with the CRA and Revenu Québec mackisen.com. The auditors will typically discuss this with you, but it’s something to plan for with your tax advisor once the audit is done.

How This Helps: This phase is about refining your financial reporting to its highest quality. Embracing the auditors’ adjustments means your final statements are accurate and robust – a reliable basis for decision-making and for external stakeholders. Think of it as a cleanup: any accounting dust bunnies that were hiding are swept out. You also gain insights into where your accounting process had gaps (because those gaps led to adjustments). Fixing them now will make next year’s books (and audit) even smoother. Moreover, the drafting process, with expert oversight, ensures your financial statements aren’t just correct in value but also presented appropriately (with all the necessary disclosures). This level of completeness and transparency can impress investors or banks who review your statements. In short, by the end of Step 7 you have a set of financial statements you can truly trust – a solid foundation for your business’s financial story going forward.

8. Communicating Preliminary Findings

Before the auditors finalize everything and issue their report, there is usually a stage of communicating preliminary findings. Think of this as the auditors giving you a heads-up on what they found, and ironing out any final wrinkles. No one likes surprises, especially in an audit, so good auditors will keep you informed throughout, and formally discuss findings with you prior to writing the final audit opinion.

Typically, the audit team will hold a closing meeting or an “exit conference.” In this meeting (which can be a call or in-person), they’ll summarize the significant findings from the audit. This can include: any major adjustments that were made, any issues encountered (for example, “we had trouble verifying the inventory count for location X”), and whether they anticipate issuing a clean audit opinion or if there might be any modifications. If there were areas where your cooperation helped or could be improved next time, they might mention those too. Essentially, this is your chance to hear from the auditors what their conclusions are before the audit report is drafted.

If the auditors uncovered any notable problems, they would be presented now. For example, if they discovered a significant misstatement that you corrected, they’ll note it. Or if during internal control assessment they found a serious deficiency (like a material weakness in controls), they’ll inform you that it will be communicated in writing. The key here is transparency: auditors should not blindside management or the board with issues in the final report that were never discussed. So, if anything could lead to a qualified opinion (meaning not a full clean bill of health), you will definitely know at this stage. In most cases for SME audits, if you’ve worked collaboratively, you’ll be on track for an unqualified (clean) opinion, and the discussion is more about minor findings and housekeeping points.

This is also a great time for management to ask questions. Maybe you want clarification on an accounting treatment: “Do you think our revenue recognition is appropriate for that new contract model we’re using?” – the auditors can provide insight. Or you might ask about best practices: “How do companies of our size handle inventory tracking? Any tips?” Don’t hesitate to pick the auditors’ brains a bit (within reason – complex consulting questions might be beyond the scope, but general feedback is usually welcome). Auditors see many businesses, so their external perspective can be valuable.

Another part of preliminary communications is agreeing on the proposed wording of the audit report and management representation letter. They might show you a draft auditor’s report, just so you see the standard wording, especially if there are any emphasis-of-matter paragraphs or such (though those are rare in straightforward cases). The management representation letter – a letter you sign to confirm you’ve provided all info and disclosed everything – will be presented in draft for you to review. It’s usually standard boilerplate, but it’s good to read it and ensure you are comfortable making those representations.

If you have those charged with governance (like a Board of Directors or Audit Committee), often the auditors will also communicate preliminary findings to them, sometimes in a separate meeting or written report. For many private SMEs, the owners are the managers, so it’s all the same people. But if, say, you have outside investors or a board, they might get a high-level summary from the auditors too.

Finally, at this stage you should confirm any open items. Ideally, you’ve provided everything, but sometimes a few confirmations or pieces of evidence might still be pending. The auditors will outline what’s left and the plan to get it. This way, you both agree on how to close any remaining loops.

How This Helps: Early communication of findings ensures there are no last-minute surprises. You get to hear the auditor’s perspective on your financials and controls candidly, and you can clarify any misunderstandings now rather than after the fact. This collaboration means the final audit report will hold no mysteries – you’ll already know if it’s clean or if there are issues and why. It also gives you a chance to correct any lingering issues (for example, if an inventory confirmation from a third party came back off, you can investigate and maybe resolve it before the report is issued). All of this builds confidence between you and the auditors. From a value standpoint, the preliminary findings discussion often provides practical recommendations and insights you can act on, even before the formal management letter arrives. In short, open communication at the end of fieldwork keeps the whole process transparent and constructive, turning the audit from a one-sided inspection into a two-way conversation about improvement.

9. Final Audit Report and Opinion Letter

At last, we reach the culmination of the audit: the issuance of the independent auditor’s report, often simply called the audit opinion, along with your finalized audited financial statements. This is the deliverable you and your stakeholders have been waiting for.

The auditor’s report is a short letter (usually 1-3 pages) that gets attached at the front of your financial statements. It is the official certification from the CPA firm about your financials. In Canada (and everywhere), an independent auditor’s report states whether the financial statements present fairly, in all material respects, the financial position and results of the company in accordance with the applicable accounting framework oag.bc.caoag.bc.ca. In simpler terms, it answers: “Are these financial statements true and correct to a reasonable degree of assurance?” The ideal answer (and report) is YES – an unqualified (clean) opinion.

Let’s decode the typical audit opinion letter: It will identify which financial statements were audited (e.g., “the balance sheet as of December 31, 2025, and the income, changes in equity, and cash flows for the year then ended”). It will then reference management’s responsibility for the statements and the auditor’s responsibility to express an opinion. The crux is the opinion paragraph, which for a clean opinion usually reads along the lines of “In our opinion, the financial statements present fairly, in all material respects, the financial position of XYZ Company as of December 31, 2025… in accordance with Canadian accounting standards for private enterprises.” If everything went well, that’s it – you have a clean audit report. The auditor signs it (in Quebec, only a licensed CPA auditeur can sign audit reports) and includes the date and their firm’s address.

What if not everything went well? If there were issues, the audit report could be modified. Examples: a qualified opinion (maybe one area couldn’t be fully audited or there was a divergence from GAAP, but not pervasive), or in extreme cases an adverse opinion or disclaimer (very rare for SMEs who voluntarily undergo audits, since you’d likely fix issues rather than accept such an opinion). The vast majority of first-time audits for private companies, if issues were minor, still end up clean after adjustments. Auditors will have communicated if any modification was looming, so no surprise at this stage. (And indeed, you’d probably avoid publishing statements with a modified opinion unless absolutely necessary.)

Along with the auditor’s report, you receive the final set of audited financial statements in PDF (and sometimes a bound hard copy if requested). Now, these statements carry the weight of credibility: they can be shared with banks, investors, or other partners who required the audit. “A set of statements bearing an independent auditor’s report instantly carries more weight,” as one article notedmackisen.com. For example, if you needed the audit to satisfy a bank covenant, you would forward this audited financial statement package to the bank. Typically, lenders or investors have deadlines – e.g., submit the audited statements within 90 days of year-end – so be mindful to distribute the report promptly to those who need it mackisen.com.

In Quebec, there’s a language consideration here. Under the Charter of the French Language (especially after Bill 96), many official documents provided to stakeholders (including financial statements for local use) need to be in French or at least bilingual mackisen.com. Luckily, most Montreal audit firms can issue the audit report in French if needed (and many do bilingual side-by-side statements). If, say, your bank or a government agency requires the audited statements en français, your audit firm can accommodate that – ideally this was communicated early on. So, don’t forget to request a French version if you have that obligation (some companies even prepare dual-language financial statements to cater to both English and French readers).

Now, once the audit report is in hand, take a moment to review the audited statements internally. Compare them to your pre-audit numbers. Do they make sense? Any changes you weren’t expecting have likely been discussed already, but ensure you understand them. The goal is that you could explain to an outsider, “Here is our financial position as confirmed by our auditors, and here’s what changed from our internal draft statements and why.”

How This Helps: The final audit report is more than just a formality – it is your company’s financial seal of approval for the year. A clean independent auditor’s report attached to your statements gives outside parties confidence that what they’re reading is reliableoag.bc.ca. This can open doors: banks may extend credit on better terms, investors are more comfortable investing, and you might even use the audited status in marketing to partners (“we have audited financials, we value transparency”). For the business owner, there’s peace of mind too – an audit is like a financial health check, and passing it means your accounting is in good shape. In essence, the audit report and audited statements turn your financial data into an authoritative document. They transform all the effort spent in the previous steps into a tangible result you can use to strengthen your credibility with stakeholders. It’s the moment where the assurance in “audit and assurance” really shines.

10. Post-Audit Debrief and Continuous Improvements

Audit done, case closed, time to relax – right? Yes, you should certainly celebrate the completion of your first (or early-stage) external audit. But there’s one last step we highly recommend: a post-audit debrief and acting on the findings for continuous improvement. The audit shouldn’t be seen as a pass/fail exam you immediately forget; it’s a learning opportunity for your business.

Start with an internal debrief. Gather your team who was involved in the audit and discuss what went well and what could be improved next time. Maybe you realized your record-keeping for expenses needs to be better, or that your timeline was too compressed and you’ll start closing the books earlier next year. Document these insights while fresh. If the audit will be an annual requirement (which for many growing companies it will be), these notes are gold for making next year more efficient. For instance, if “we scrambled to find supporting docs for fixed assets” was a pain point, you can implement a process now to archive those documents in a dedicated folder throughout the year.

Next, consider a closing meeting with the auditors (if they haven’t already had one with you as part of preliminary findings). Many audit firms are happy to have a frank discussion after issuing the report. This is your chance to ask for candid feedback: “What areas caused the most headaches? How do we compare to other companies our size in terms of organization?” Auditors might not breach confidentiality or give you direct comparisons, but they can often share general best practices. Perhaps they’ll suggest, “Next year, prepare a memo on how you calculate your allowance for doubtful accounts – it would speed things up,” or they might note, “Strengthening segregation of duties in payments would be beneficial.” Such feedback is extremely useful. Also, if any new accounting standards are coming into effect (for example, a new lease accounting rule under ASPE or IFRS), the auditors might remind you so you can be ready.

Crucially, pay attention to the Management Letter (sometimes called a post-audit or management recommendations letter) that the auditors provide. In most audits, especially first audits, the CPA firm will issue a letter addressed to management and/or the board outlining any observations and recommendationsmackisen.com. This letter is not public – it’s meant for you to improve your business. It might point out internal control issues, inefficiencies, or anything they think you could do better. For example, they could mention that your receivables collection is slow compared to peers and suggest stricter credit controlsmackisen.com. Or they might note a lack of documented processes and urge you to create some basic procedure manuals. In Quebec SMEs, a common recommendation might be to segregate duties – e.g., ensure the person reconciling bank accounts isn’t the same person making payments, to reduce fraud risk. Another might be around IT backups or cybersecurity for your accounting data. Treat this letter like a consultant’s report that you got for free (or rather, as a value-add of the audit fee). Go through each recommendation and consider implementing it. It’s good practice to discuss the management letter at a leadership meeting and assign responsibility and timeline to address each point. Remember, auditors are required to report significant control issues in writingmackisen.com – if you got such comments, it’s wise to fix them before the next audit.

In addition, reflect on the audit adjustments that were made. These indicate where your financial statements would have been wrong without the audit. Is there a way to avoid those next year? For instance, if an adjustment was made because you missed accruing certain expenses, you can update your closing checklist to include that accrual going forward. If inventory needed a write-down for obsolescence that you hadn’t considered, maybe implement a quarterly review of stock to catch that earlier. Each adjustment is a clue to where your accounting processes can be tightened.

Don’t forget any tax follow-ups: as noted earlier, if the audit resulted in changes to income or balances that affect taxes, loop in your tax advisors. You might need to file amended returns or at least inform tax authorities of adjustments (especially in Quebec where Revenu Québec might need to know if, say, your tax credit claim was adjusted).

Finally, celebrate and communicate the accomplishment. Completing an external audit is a milestone for a growing company. Internally, thank your team for their hard work (audits can be stressful, and your staff likely put in extra hours). Externally, if appropriate, let stakeholders know – for example, inform that new investor that you successfully got a clean audit opinion, or mention in your next board meeting that “our auditors gave us a clean bill of health, with some great suggestions we’re implementing to further strengthen our controls.” This shows you take financial governance seriously. In Montreal’s business community, having audited financials can enhance your reputation – it signals maturity and reliability.

How This Helps: By taking the time for a post-audit debrief and following up on recommendations, you transform a one-time compliance exercise into a continuous improvement cycle mackisen.com. The audit’s true value lies not just in the report you received, but in the lessons learned about your company’s financial practices. Implementing the auditors’ recommendations can lead to stronger internal controls, more efficient processes, and even cost savings (for example, better cash management if you improve receivables, or lower future audit fees if your record-keeping improves). In essence, you’re using the audit as a strategic tool to sharpen your business. When next year’s audit comes around, you’ll find it easier and quicker, and your financial management will be all the more robust. Continuous improvement closes the loop of the audit process – turning insights into action, and giving you greater confidence and clarity in running your business.

Conclusion: An external audit may seem like a long journey, but with each step outlined above, you gain clearer financial insight and stronger business practices. At Mackisen, we guide our Montreal and Quebec clients through every phase of the audit with clarity, professionalism, and strategic insight. We believe an audit isn’t just about compliance – it’s an opportunity to enhance your company’s credibility and operations. From the initial planning meeting to the final debrief, our team is by your side to make the process as smooth and informative as possible. With the right guidance, what starts as a regulatory requirement ends as a valuable milestone, empowering your business with verified financials and a roadmap for improvement. Mackisen is here to ensure that every step of your audit journey is clear, positive, and ultimately beneficial for your company’s future.