Governance before the audit: building trust in financial reporting

What is governance?

Governance is the system of oversight, accountability and challenge that sits around the numbers, not just the controls that produce them. It determines the environment in which those controls operate and should run throughout the reporting cycle, not emerge when the audit begins.

CFOs should think about the chain of activities that flow from transaction to disclosure:

Weaknesses anywhere in that chain can undermine the result even if the arithmetic is correct. Weak governance can ultimately surface through restatements, delayed reporting, expanded audit effort, regulatory scrutiny and loss of investor confidence, resulting in potentially significant financial and reputational consequences.

Core pillars of strong pre-audit governance

Accountability and tone at the top

The tone set by the CEO and CFO is fundamental to a strong reporting culture. This goes beyond signing off the financial statements and requires active ownership of the reporting process from the outset. When leadership demonstrates that financial reporting integrity is a priority, it cascades through the organisation and shapes how judgements are made and challenged. The audit committee plays an equally important role, with challenge seen as a feature of good governance, not friction.

Process discipline and clear lines of review

Strong governance requires discipline in how the closing process is managed. A clear close timetable, communicated well in advance, ensures all parties understand deadlines and responsibilities. Equally critical is a documentation culture: significant decisions should be documented when made, not reconstructed months later for the audit.

Governance over judgements and estimates

IFRS standards require management to make estimates and judgements, and some of the greatest financial reporting risks arise when IFRSs do not provide a simple mechanical answer. Good financial reporting depends on how those judgements are made, challenged, documented and communicated. Good governance asks who made the judgement, what evidence supports it, what alternatives were considered, and who challenged it. For significant judgements, the rationale, evidence and challenge should be visible and contemporaneously documented.

Data, systems and controls

Reliable financial reporting depends on the integrity, completeness and accuracy of the data flowing through the organisation's systems. As financial reporting becomes increasingly technology-driven, and organisations embrace AI-enabled solutions, robust IT governance and effective general IT controls serve as critical guardrails. Organisations need a clear view of technology risks running through their financial reporting processes, requiring active management and monitoring throughout the reporting cycle.

Transparent reporting

IFRS reporting requires more than getting the numbers right. Entity-specific disclosures are critical to helping users understand significant judgements, estimates and risks. Therefore, the key question to ask is whether a knowledgeable reader would understand the issue from your disclosures.

Practical readiness before the audit

Governance before compliance

Rather than waiting until year-end to assess compliance with IFRS, strong organisations ask themselves at a much earlier stage whether the reporting processes are working as intended. The key questions are:

1. Have significant and unusual transactions been identified and analysed early?
2. Are key judgements supported by evidence, documented and independently challenged?
3. Have prior-year findings been remediated or merely closed administratively?
4. Are auditors aware of significant transactions, judgements and unresolved reporting issues?

Early auditor communication

Key judgements and open items should be shared with the auditors before fieldwork starts, rather than during it. However, this does not transfer management's responsibility to the auditors. Management should first establish and document its own accounting position.

Conclusion

Auditor transitions are inherently challenging, but they also present an opportunity for boards to demonstrate strong governance and commitment to transparency. By planning early, managing the project rigorously, and communicating openly, boards can mitigate disruption and unlock the fresh perspectives and insights a new auditor brings.

The transition is not just a compliance exercise but a chance to strengthen your audit function and reinforce stakeholder confidence.