Audit Findings in PE-Backed SMEs: What Causes Them and How to Prevent Them

An audit finding is not the same as an error. It is a gap between what auditors expect to see and what they find — in controls, processes, documentation or governance.

For PE-backed SMEs, findings carry weight beyond their technical significance. They appear in a document that goes to the board and, often, to investors. They affect the auditors' assessment of the control environment. And where the same finding recurs in successive years, they begin to reflect on management credibility.

Understanding what causes findings — and addressing those causes before fieldwork — is one of the most effective governance investments a finance function can make.

The Most Common Causes of Audit Findings

1. Unclear or absent ownership

The single most common underlying cause of audit findings is that no one clearly owns a control or process. The control may exist in theory — it may even be documented — but if it has not been assigned to a named individual who understands their responsibility and performs it consistently, it will break down.

This manifests in different ways: a reconciliation that "someone" was supposed to do but has not been completed in three months; a review sign-off that appears on workpapers without evidence of genuine challenge; a user access review that everyone assumed IT was handling.

The fix is straightforward but requires deliberate effort: every key control needs a named owner, documented in a control matrix, who has accepted responsibility for it.

2. Evidence that cannot be produced

Auditors need evidence that controls operate. Not assertions that they operate. Not verbal confirmation from the finance team. Evidence — a signed workpaper, an email approval, a system log, a completed checklist.

Where controls operate but leave no traceable evidence, auditors cannot rely on them. This is not a reflection on the quality of the control. It is a documentation problem that results in a finding.

Good control design includes an evidence layer: what will demonstrate that this control was performed? Build that into the process before the first time the control operates.

3. Late or incomplete month-end close

A consistently clean month-end close is one of the strongest positive signals in the audit. The inverse is also true: a close process that is incomplete, inconsistent or poorly evidenced signals a fragile control environment.

Common close control weaknesses that generate findings include: reconciliations performed after the close deadline without explanation; no evidence of management review; journal entries posted without authorisation; and cut-off errors that recur without a root cause fix.

4. System access gaps

As discussed in the ITGC article in this series, access control weaknesses are among the most frequently cited findings across PE-backed SME audits. The most common variants:

• Former employees with active access to financial systems
• Users with access rights that allow initiation and approval without independent oversight
• Shared or generic login credentials that prevent transaction-level attribution
• No periodic review of access rights

These findings are almost entirely preventable. They require process, not technology — an offboarding checklist, a quarterly access review, a responsibility assignment. The absence of this process is the finding.

5. Prior year findings not remediated

When a finding appears in year one and the same finding appears in year two, that is a more serious observation than the original. It indicates that management either did not implement the agreed action or implemented it without effective follow-through.

Auditors track prior year findings through the engagement lifecycle. Management should track them too — with the same rigour. A log of findings, agreed actions, owners and completion dates, reviewed regularly and updated honestly, prevents recurrence.

6. Accounting treatments not pre-agreed

Some findings arise not from control weaknesses but from accounting disagreements. Management presents a judgement; auditors challenge it; a revised treatment is required mid-fieldwork.

This is almost always avoidable. For any accounting treatment that involves genuine uncertainty — revenue recognition on complex contracts, the capitalisation threshold for development costs, the recoverability of a balance — raising the question with the audit partner before the year end allows the disagreement to be surfaced and resolved in advance.

7. Going concern assessed too late or too narrowly

Going concern is a specific area of audit focus that requires more rigour than many SME finance teams apply to it. A going concern assessment that covers only the next six months, that does not stress-test the base case assumptions, or that does not address specific risk factors known to the business will generate audit queries.

The assessment should be prepared well before fieldwork, reviewed by the board and shared with auditors in advance of their own evaluation.

How to Prevent Findings: A Practical Framework

Prevention is more cost-effective than remediation. A finding that appears in the management letter has already cost the finance team time during fieldwork, consumed audit resource and created a governance record. Preventing it requires earlier, but typically smaller, effort.

Map your controls explicitly. A control that is not documented does not exist from an audit perspective. For each key financial reporting process, document the control, the evidence it produces, the owner and the review process.

Test your own controls before auditors do. A simple pre-audit self-assessment — where the finance team walks through the control matrix and checks that each control is operating as documented — catches gaps in September that would otherwise appear as findings in November.

Build the evidence habit. Controls should be designed to leave evidence. Where current processes do not, change the process — not to create paperwork for its own sake, but to create a verifiable record that the control operated.

Track findings to closure. Whether from internal review, prior year audit or management self-assessment, findings and observations should be logged with actions, owners and deadlines, and reviewed at least monthly. Closed findings should be evidenced, not just asserted.

Engage auditors earlier. The pre-fieldwork period is the most underused resource in the audit relationship. Use it to pre-agree accounting treatments, flag control gaps you are working on and understand where audit focus will be highest. Auditors who are informed in advance are less likely to treat issues as findings; those who discover issues during fieldwork have less flexibility.

When Findings Do Occur

Some findings will occur regardless of preparation. The question is how they are handled.

A finding that management knew about, has a clear remediation plan for, and can discuss fluently in the clearance meeting is very different from one that appears as a surprise. The former demonstrates control awareness and mature governance. The latter raises questions about what else management may not know.

That response, consistently applied, is what moves a finance function from one that has findings to one that auditors and investors trust.