The Audit Blueprint: CFO's Guide to Financial Integrity

Episode # 140: Financial integrity isn't just about compliance—it's the cornerstone of organizational trust and success. In this thought-provoking exploration of the audit function, we dive deep into how forward-thinking CFOs are transforming what's often viewed as a necessary evil into a strategic advantage.

The most effective finance leaders understand that auditing isn't about hunting for mistakes or satisfying regulators; it's about building a foundation of accuracy that enables better decision-making at every level. We examine three essential pillars that should guide your audit strategy: fostering a team with unwavering professional ethics, ensuring meticulous financial accuracy in reporting, and implementing robust internal controls to safeguard company assets. These elements aren't just technical requirements—they're competitive advantages in a business landscape where trust is increasingly valuable currency.

Risk assessment emerges as a critical companion to effective auditing. By creating and continuously updating a comprehensive risk matrix, the CFO can ensure audit resources are deployed where they'll have the greatest impact. Whether you lead a small private company or a publicly traded enterprise, this strategic approach to audit planning transforms compliance activities into valuable insights that support long-term business goals. Remember, a truly effective audit function should regularly uncover areas for improvement—if your auditors never find issues, it's time to review your testing processes. The journey toward financial excellence begins with embracing auditing not as a basement-dwelling afterthought but as a spotlight illuminating your path to organizational integrity and sustainable success.

Episode outline:

1. Why is a solid audit plan essential for your organization,
2. Measuring and assessing organizational risk, and
3. How the CFO shapes the audit plan to support long term strategy. 

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Transcript

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Stephen McLain: 0:04

how does the Chief Financial Officer lead and shape the audit process to ensure better financial accuracy and the validation of internal controls? The CFO leads the audit function, not as an afterthought, but as a primary focus, so that we know that our financial transactions are recorded properly and that our internal controls prevent asset loss. All of our stakeholders, whether we are private company or publicly traded, want to be assured that our financial position is accurate and that we have accounted for the correct risks in our industry. Please enjoy the episode. Welcome to the finance leader podcast where leadership is bigger than the numbers. I am your host. Stephen McLain, this is the podcast for developing leaders in finance and accounting. Please consider following me on Twitter, Facebook, Instagram and LinkedIn. My usernames and the links are in this episode's show notes. You can also follow finance leader Academy on LinkedIn. Thank you. This is episode number 140 and I'll be talking about how the CFO shapes the organization's audit process to ensure proper financial accuracy and more, and I will highlight the following topics. Number one, why is a solid audit plan essential for your organization? Number two, measuring and assessing organizational risk. And three, how the CFO shapes the audit plan to support long term strategy. Accounting professional and executive Thomas Mitchell said, to be the best accountant is to be the custodian of financial integrity. It's good to be back from the break I just had. It was a short break, but very important. Have you been on vacation this summer? Or is your vacation coming up soon? It's important to take a break from work to recharge, to spend time with family, and to just get away from everything that relates to work. And sure you take time off and also take several days off in a row. I used to just take one day or two off here and there, but that doesn't really give you a chance to fully recharge, and the office doesn't ever get the opportunity to try to manage with you out for an entire week. It's also important for your team and your boss to manage things while you are out of the office for a week or so. It's good to be back on the podcast for our growth oriented discussions. I am excited for the next few weeks, because I will be talking about auditing, which is often overlooked. It's one of the most important functions in finance and accounting. But it seems like you never see the auditing team, because they are stuffed in the basement somewhere away from everyone. It's true, you hardly ever see them. They keep to themselves, and even when they get to see sunlight, no one likes them. I have been an auditor, and I was really literally hated, but not because of me personally. It was just my role. Now there's a lot to cover when it comes to auditing, it is not an afterthought to have a great auditing team and plan in place. It is essential to the organization's long term success. Senior leadership must be invested in the auditing function to test and ensure proper processes and reporting. It's just too risky to not think about it properly. Now, did you listen to episode number 139, that I did a few weeks ago? Lessons on coaching effort a Las Vegas aces leadership case study. It was a short episode and has become quite popular. I did a short leadership case study about expectations that we have for our team members. It's important to communicate what you expect from your team. They need to know what they need to do to achieve excellence. It's our role as leaders to communicate clarity on what we want done and how to do it. It's also our job to establish team priorities and our purpose. When you get a chance, please go back to listen to episode number 139, lessons on coaching effort a Las Vegas aces leadership case study, thanks. We all basically know how important the audit function is. Our goal is to verify we are doing the right thing. Why is that important? Financial accuracy leads to several important outcomes, including making more timely and better decisions, satisfying our investors requirements and finding additional funding when needed, ensuring we are compliant with government requirements, safeguarding our assets from fraud, waste and abuse and to mitigate risk. How do we tie the audit plan? Measuring risk and how we plan and execute our strategy. Every Strategic Plan has risk, our audit plan should model risk against financial accuracy. There are three essential audit outcomes I want you to be focused on for your team. The first is that you have a team that practices strong professional ethics. Next is financial accuracy and everything we do. And finally, the assets of the company are protected. There are other considerations, but if you get these three right, you are doing great. We need our professionals to be following the law and making ethical decisions and conducting their work properly. We need our financial transactions to be accurate in accordance with regulatory requirements and also with GAAP and we need to have the right internal controls in place to protect company assets. Review your internal controls and test your internal controls. Always be sneaky about testing internal controls. Test the integrity of the system and the company's personnel. Our professional ethics must be unyielding. This takes leadership, and it starts with every leader in the organization. Strong ethics fixes a lot of problems. The decision to do the right thing every single day solves future problems so they never happen. We need transparency and accountability. Training and leadership. Showing up daily is the solution for ensuring our team members are equipped with knowledge and support to make the right decisions. We expect financial accuracy, because it's the foundation of how we perform and that we are compliant with regulatory requirements. We must practice recording transactions properly and accounting for items like Depreciation and write offs and changes in market value for Securities and Investments, plus many others. If we don't our financial systems are wrong, and then we make wrong decisions, and we can unknowingly mislead many different stakeholders, like investors, government regulators, external auditors, and we mislead ourselves and our team, protecting company assets is a must to some taking assets for their own is no big deal, and some employees become really good at exploiting holes and internal controls. We must be vigilant and dedicated to testing for weaknesses and to find those abnormalities. It depends on your industry, but each has its own challenges and ways to take or waste assets. With retail, it's shrink. With restaurants, manufacturing and many others, it's waste. We do expect raw materials to be turned into a planned amount of finished goods, but when we come up short each month, It either means our employees are using too much material, which is another set of problems, or the material is disappearing. I do recommend that you look at auditing as a sole career path and as an isolated career experience, because it will help you significantly. It will prepare you for higher responsibility. The CFO with audit experience provides a unique viewpoint on ethical leadership, accurate financial reporting and the overall protection of company assets. Now I said earlier that I was an auditor, an internal review officer for the army in Iraq. I was not everyone's favorite person, but I had a job to do to ensure funds were used properly and that our assets and equipment were properly accounted for, I was able to team up with the right people who also believed in the same principles, and I knew that the senior leadership were on board to get the right processes in place to ensure the correct oversight and procedures were in place to achieve our common goals. Now let's talk about the CFO and the audit function number one, why is a solid audit plan essential for your organization? It may seem obvious, but what if you never verified that your transactions are accurate and never verified that your internal controls are working? In fact, what if you don't have any internal controls your stakeholders are looking for verification that what your company is reporting is accurate. You need a mix of external and internal audits to validate your processes and your reports also accurate. Financial Reporting begins with data accuracy. Are the financial transactions being recorded in a timely manner and is it accurate? We want to set up the senior leaders with accurate information so they can make the best decisions, but that only happens if the company's books accurately reflect the true financial position of the company. Do you have an audit plan and an audit team that is realistically plugged in to the company and is properly. Fully resourced. Number two, measuring and assessing organizational risk. How your organization handles risk depends on if you have a separate risk team, but I do believe that every team under the CFO must be measuring and assessing risk as a part of their responsibilities. Even if there's a separate, dedicated risk team, it is critical to identify and analyze risks so that they can be evaluated for potential magnitude and mitigation. Risk helps to validate how potential threats will affect our goals and objectives, and to test if our resources are properly aligned and allocated an organizational risk matrix that is continually updated and assessed will help to steer leadership to the most effective courses of action and decision making to overcome identified threats. The CFO leads the risk process and then ties that with the audit plan to better prioritize and mitigate risk as it applies to resource allocation and the overall financial health of the organization. Number three, how the CFO shapes the audit plan to support long term strategy. Much of what we can do depends on the size of your company. The CFO must own the audit process and ensure that it is properly resourced and planned out. The CFO must have the right approach and leadership oriented attitude so that audit can do its job without obstacles. Your audit team can help you by validating and checking accuracy, by testing possible weaknesses on internal controls and by ensuring government compliance for publicly traded companies, audit becomes one of your most essential tasks in order to protect its financial reputation. No one wants an Enron for a company, financial accuracy and regulatory compliance becomes the expectation, along with a strong ethics base across the company, you have to do it right. The proactive CFO gets ahead of problems. Audit is never seen as a nuisance, because the regulators will cite you or the investors were bulk. We perform it because it's a tool to help us become better, which also helps us align properly with government regulations and will entice more investors. The CFO has so many responsibilities to ensure the audit plan is developed properly and meets the need of the organization, aligning with the business strategy review and implementation of internal controls, the verification of accounting practices and the monthly close process, the protection of assets, the application of the right technology and the promotion of ethics for a more professionally aligned staff who do the right things. Always, I believe very strongly that if you get the internal auditing process properly and correct and aligned with your staff and aligned with your processes, your external audits will run very smoothly, and you will get the results that you are looking for. Auditing is a strategic tool to help our senior leaders address areas of concern about financial stability and financial health. Are your books accurate? Is the financial knowledge accurate that the senior leaders are using to make decisions, assess risk, evaluate options, to update the long term vision and many others. If there are significant material weaknesses that are unaddressed and unknown, this can lead to operational failure. Let's get the audit function properly planned out and executed. Now for action today, I want to mention two different actions today depending on your current role. The first, if you're currently a CFO, does the audit plan meet the needs of your organization? What can you do to improve the audit plan based on the size and industry your organization is? Are you doing the right internal audits to determine and test for any material weaknesses, and is your audit team properly resourced? Is the composition of the team line up with the needs? Does your team have the right access to records and people to conduct their auditing duties? And secondly, if you are not a CFO, have you considered auditing as a possible career path or even as a role as you gather more career experience? I believe that working in audit for two or three years can help your overall development and round out your experience as you move to becoming a CFO and even a CEO. Now today, I talked about how the CFO shapes the organization's audit process, and I highlighted the following points. Number one, why is a solid audit plan essential for your organization? Number two, measuring and assessing organizational risk. And finally, number three, how the CFO shapes the audit plan for. To support long term strategy, the audit plan should always be a primary focus, never an afterthought. Your audit team should be resourced so they can investigate discrepancies in the books and concerns about the established internal controls, push them to deep dive and continue to test if they don't find anything, then we need to review our processes, because they should be finding something of concern. No company is perfect. We don't want areas of concern to become material weaknesses. Additionally, we continue to teach and enforce a high level of ethics to avoid improper business practices. I can speak for myself, that if I find myself in a company that has a culture of misrepresentation or improper business ethics, I will exit out. If the culture refuses to change, you have to determine your outcome. Next episode, I will be talking about the audit team and deep dive more into the audit function. I hope you enjoyed the finance leader podcast. You can find this episode wherever you listen to podcasts. If this episode helped you today, please share with a colleague until next time, you can check out more resources at finance leader academy.com and sign up for my weekly updates so you don't miss an episode of the podcast and now go lead your team, and I'll see you next time. Thank you. You.