A ‘hard close’ audit – one way we can improve quality and bring more of our work forward in the year.

The Queensland Audit Office (QAO) has agreed with some clients to undertake a ‘hard close’ financial audit this year. This blog explains what a hard close is, how we do it, and why you should consider it next financial year for your entity.

But what is a hard close audit?

A hard close financial audit is when management prepares a full set of financial statements, including all material figures and disclosures (where practical), as at a designated period; for example, 30 April. QAO then audits this set of financial statements and reports any findings.

A hard close audit can work for both small and large audits. But it best lends itself to an entity with a mature control environment able to produce a quality set of financial statements prior to the reporting date. It would not be as efficient for management to prepare, and for us to audit, 2 sets of financial statements because the hard close version was not of high enough quality.

What are the benefits of a hard close audit?

The aim is that we work with entity management to bring more of the financial statement preparation and audit work out of the busy year-end period to undertake it earlier. Some of the benefits of this are:

• Improved financial statement quality – we identify material errors and accounting issues earlier, so they can be resolved with management prior to our year-end visit.
• More accurate and timely reporting – management can report more accurate financial results to those charged with governance and their audit committees earlier in the year, which avoids surprises at year end.
• Smoothing the busy year-end period – helping to alleviate resource challenges.

What areas of financial statements can we audit earlier?

This depends on the nature of each entity, however, we can audit some financial statement items before year end. These include:

How will we report any findings or misstatements?

We will report any findings from our hard close audit, including any identified misstatements that are above our thresholds, within our interim management letters to you. Misstatements won’t carry forward into our closing reports (provided management correct them before our year-end audit).

Will this cost more?

A hard close audit should not cost more because it should not result in us needing more time to undertake the audit overall. We might, however, need more time earlier in the year, but this will be balanced with needing less after the reporting date (for example, the dates of 30 June or 31 December).

How can clients arrange a hard close for the next audit cycle?

That’s a great question, which we would love to discuss with you. As a start, you can consider the following:

• Ensure that your financial reporting team, management team, and governance team are on board.
• Assess your financial statement maturity using our model, and ensure your month-end reports are robust, complete, and accurate. A good hard close can leverage your month-end reports.
• Review the timing of key financial statement processes. Ensure you align preparation of your pro-forma financial statements and position papers on key estimates and judgements (such as asset valuations) with a hard close timetable.
• Speak with your QAO engagement leader about hard close opportunities for your entity.

Other relevant reading

• The importance of timely release of financial information
• Example client assistance schedule 
• How to enhance your regular management reporting
• Focusing on your key financial statement disclosures
• Preparing for an audit–small public sector entities
• Financial statement preparation maturity model self-assessment.