What Auditors Actually Look For — From Someone Who's Done It
What auditors actually look for isn't fraud — it's evidence, logic and consistency in your books. 10 years of audit experience explained in plain English, plus the one habit that changes everything.
Charles
7/3/20264 min read
Most business owners think an audit is about catching fraud. Some think it's just a formality their bank or investors demand. Others think it's a deep dive into every single transaction the company has ever made.
None of these are quite right.
After 10 years in external audit, I've sat across the table from business owners who were terrified, business owners who were defensive, and business owners who genuinely had no idea what we were looking for. So let's clear it up.
Here is what auditors actually look for — and why it matters even if you'll never be audited.
An Audit Is Not a Fraud Investigation
This is the biggest misconception. An audit exists to give an opinion on whether your financial statements present a true and fair view of your company's financial position — not to hunt for criminals.
We are not assuming you did something wrong. We are testing whether the numbers you've presented can be supported by evidence.
That said, if something looks wrong, we will absolutely dig deeper. But the starting point is always professional scepticism, not suspicion.
What We Actually Check
1. Does the Number Have Evidence Behind It?
Every figure on your financial statements needs to be traceable back to something real — an invoice, a bank statement, a contract, a delivery note.
If your revenue says $500,000, we want to see the invoices that add up to that number. If your fixed assets say $200,000, we want to see what was purchased, when, and for how much.
This is called substantiation. A number without supporting evidence is a number we cannot accept.
2. Does the Accounting Treatment Make Sense?
It's not enough for the number to be real. It also needs to be recorded correctly.
We check things like: Was depreciation calculated using a consistent method? Were prepayments properly spread over the periods they relate to? Were liabilities recognised in the right period, not pushed to next year to make this year look better?
This is where a lot of small business books fall apart — not because numbers are fake, but because the treatment is wrong. Land being depreciated. GST balances on a company that isn't even GST registered. Lease payments coded as accumulated depreciation. These are real examples I've personally encountered.
3. Is There a Logical Story Across the Numbers?
We don't look at accounts in isolation. We look at relationships between them.
If your revenue grew 40% but your receivables stayed flat, that's unusual — are you collecting cash faster, or is something off? If your inventory grew but your sales didn't, why is stock piling up? If your payroll expense doesn't move with headcount, something needs explaining.
This is called analytical review, and it's often how we identify which areas need closer attention — long before we even open a single supporting document.
4. Are Internal Controls Actually Working?
For larger companies, we test whether the processes in place to prevent errors and fraud are actually functioning — not just documented on paper.
Does someone other than the person who pays suppliers also approve those payments? Is there a proper review before journal entries get posted? Are bank reconciliations done monthly, or once a year right before the audit?
For micro and small businesses, formal controls are often minimal — which is fine. But even simple controls, like having someone review the books monthly, make an enormous difference to the reliability of your numbers.
5. Related Party Transactions
We always look closely at transactions between the company and people connected to it — directors, shareholders, family members.
Did the company lend money to the director? Did the director pay personal expenses through the company card? Are transactions with a related supplier priced fairly, or inflated?
None of this is automatically wrong. But it needs to be disclosed and treated correctly — and yes, we've all seen the company card used for things that have absolutely nothing to do with the business.
6. Going Concern
Can this business actually continue operating for the next 12 months?
We look at cash flow, outstanding debts, upcoming obligations, and whether the company has the means to keep functioning. A profitable-looking business with no cash and mounting unpaid bills is a going concern red flag, regardless of what the P&L says.
Why This Matters Even If You're Never Audited
Most micro and small businesses will never go through a formal audit. So why does any of this matter to you?
Because the same principles that make a company auditable are the same principles that make a company financially healthy.
If your numbers have proper evidence behind them, you actually know what's happening in your business. If your accounting treatment is correct, your financial statements tell the truth — not a distorted version of it. If there's a logical story across your numbers, you can spot problems before they become disasters. If you have basic internal checks, fewer things slip through the cracks.
You don't need an audit to benefit from thinking like an auditor.
The Single Habit That Changes Everything
If I had to boil down ten years of audit experience into one habit for small business owners, it would be this:
"Reconcile your bank account every single month, and make sure every transaction has a reason behind it."
Not at year end. Not when the accountant asks. Every month.
This single habit catches errors early, keeps your books honest, and means that if you ever do need an audit — or just need to understand your own business — the numbers will actually make sense.
The Bottom Line
Auditors are not looking to catch you out. We are looking for evidence, logic, and consistency.
The businesses that struggle most during an audit aren't the ones with the most complex operations — they're the ones with the messiest books. Missing supporting documents. Inconsistent treatment. Numbers that don't tell a coherent story.
The good news is that the fix isn't complicated. Clean, consistent, well-documented bookkeeping solves most of it before an auditor ever walks through the door.
Want your books to tell a clean, coherent story? At BookJobs, we handle bank reconciliation and management accounts for micro and small businesses worldwide. $3 per transaction. No monthly fees. No contracts.
You might also like:
Contact us
Whether you have a request, a query, or want to work with us, use the form below to get in touch with our team.
Contacts
For enquiries, support, or bookkeeping services:
hello@getbookjobs.com
BOOKJOBS (UEN: 53523876B)
60 Paya Lebar Road, #06-28 Paya Lebar Square, Singapore 409051
Cloud bookkeeping for businesses worldwide