Common Audit Red Flags (And How to Avoid Them Before They Happen)
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Common Audit Red Flags (And How to Avoid Them Before They Happen)
Every audit tells a story.
Sometimes that story is clean and clear — other times, it’s full of question marks that make auditors dig deeper.
At Trust Maven®, we’ve seen many of these “red flags” pop up in SMEs — often unintentional, but costly if left unchecked.
Here’s what auditors usually notice first 👇
⚠️ 1. Big Differences Between This Year and Last Year
If your sales suddenly double or drop sharply without explanation, auditors will ask “why.”
It doesn’t mean they suspect wrongdoing — they just need to confirm the story behind the numbers.
How to avoid it:
Document major changes — new contracts, price adjustments, or loss of a customer — so the reason is clear when audit season comes.
Every big change should have a clear, written reason.
💸 2. Missing or Vague Supporting Documents
An expense without a receipt, or a payment without an invoice, is a red flag.
Even if the transaction is genuine, the lack of proof makes it unverifiable.
How to avoid it:
- Keep receipts, invoices, and payment proofs organised (digitally is fine).
- Write short notes on receipts like “Client meeting – March 2025.”
- Never “borrow” a personal expense to fill a gap.
No document, no deduction. Simple.
🧾 3. Personal Expenses Mixed Into Company Books
Using company funds for personal spending — even accidentally — complicates audits.
Auditors must separate what’s personal vs business, and that slows everything down.
How to avoid it:
- Maintain separate accounts.
- Record director reimbursements properly.
- Use director’s accounts to track legitimate advances.
Treat your company’s money like you’re holding someone else’s wallet — carefully.
🧮 4. Inconsistent or Unreconciled Balances
When your bank statements, supplier records, or stock counts don’t match your books, it signals poor control.
Auditors will need to investigate the difference, which means delays and more queries.
How to avoid it:
- Reconcile monthly, not yearly.
- Review supplier and debtor balances quarterly.
- Double-check loan or shareholder accounts for accuracy.
🏢 5. Unclear Related-Party Transactions
Payments to directors, shareholders, or “friendly” companies draw attention if not clearly explained.
These aren’t illegal — they just need proper disclosure.
How to avoid it:
- Keep resolutions and agreements for every related-party deal.
- Disclose loans or advances in your notes to accounts.
- Get advice before transferring funds between entities.
Transparency keeps you safe.
💡 6. Poor Record of Fixed Assets
Auditors often find mismatched asset lists — items sold, written off, or never recorded.
That raises questions about depreciation and valuation accuracy.
How to avoid it:
- Keep an updated fixed-asset register.
- Record asset disposals properly.
- Attach invoices or serial numbers for traceability.
❤️ 7. Lack of Review or Oversight by Directors
When directors don’t review accounts, it shows up in the audit trail — unsigned reports, unexplained balances, or missing approvals.
Auditors view that as weak governance.
How to avoid it:
- Review financials quarterly.
- Ask questions before signing.
- Maintain minutes or approvals for major spending decisions.
A responsible director is an auditor’s favourite kind.
💬 Final Thoughts
Auditors aren’t out to catch mistakes — they’re there to confirm that your company’s story makes sense.
The cleaner your records, the smoother the process.
Good accounting and compliance habits aren’t just for audit time — they protect your credibility all year round.
At Trust Maven®, our approach through Compliance360 keeps your company’s CoSec, accounting, and audit records aligned, so you’re always ready — no surprises, no panic.
“Audits don’t create problems — they reveal how ready you are.”
💌 Want to know if your company has any audit red flags?
Book a RM49 consultation session with Trust Maven® — we’ll review your accounts, highlight risks, and waive the fee if you engage our services.