Auditors aren’t looking for reasons to make your life difficult — they’re trained to spot the same handful of patterns that tend to signal deeper problems. Knowing what they look for is the best way to catch issues yourself, first.
Revenue recognized before it’s actually earned. If income is being recorded when a deal is signed rather than when the product is delivered or the service is performed, that’s one of the fastest ways to trigger scrutiny. Revenue timing should follow a consistent, defensible policy, not whatever makes a given month look best.
Unusual journal entries, especially ones made late or without clear documentation. A pattern of manual adjustments right before financials are finalized — particularly ones that conveniently improve the numbers — is one of the first things auditors are trained to trace back to its source.
Related-party transactions that aren’t clearly disclosed. Payments to businesses owned by the same person, family loans, or informal arrangements between related entities need
to be documented and disclosed, not buried in a generic expense category.
Inventory or asset values that haven’t been reviewed in a long time. Carrying old inventory at full value when it’s actually obsolete, or depreciating assets incorrectly, distorts
your financial picture and is a common finding.
Missing or inconsistent documentation. A transaction without a receipt, contract, or clear business purpose attached raises the question of what else might be missing. This is usually less about any wrongdoing and more about a documentation habit that slipped over time — but auditors can’t tell the difference from the outside, so the burden is on you to have the paper trail.
A pattern of round numbers or estimates where actual figures should exist. Real transactions are rarely round numbers. A books full of suspiciously tidy figures suggests estimation rather than accurate recordkeeping.
Bank reconciliations that don’t fully tie out, or haven’t been done consistently. This is often the very first thing checked, because it’s the fastest way to tell whether the books can
be trusted as a starting point at all.
The good news: every one of these is preventable with consistent monthly bookkeeping discipline and documentation habits built in as you go, rather than reconstructed under pressure. A red flag caught internally, ahead of time, is a non-event. One found by an auditor becomes a much longer conversation.
If you’d like a second set of eyes on your books before an audit finds something first, we’re glad to help. Call (312) 772-6105 for a free consultation.
