Addressing small gaps in your controls — known as control deficiencies — helps protect your business:
If your financial statement audit comes back with serious material weaknesses or significant deficiencies, those issues need to be communicated with your board of directors and you may need additional audit work to address related risks.
However, many audits also reveal some smaller deficiencies that organizations put on the back burner. These issues may seem minor but often signal deeper process gaps and can compound over time, affecting forecasting, lender relationships, your ability to scale and even your team performance.
One of the most common is weak documentation with no clear audit trail showing who approved what. Other problems include recurring adjustments each year and control gaps where key processes lack adequate oversight. Delayed reporting can also signal a breakdown in the close process.
Another common audit issue is the lack of segregation of duties. In small companies, one person is sometimes handling multiple financial functions, including processing payments, recording transactions and reconciling accounts.
A slow, manual close process may be an inconvenience for a $5 million revenue stream, but it becomes a major bottleneck as the organization grows to $50 million in revenue with more complex transactions, entities and stakeholders. If you don’t address deficiencies, you will find your annual audit gets harder as the same problems crop up and expand every year. What would have been a simple fix then in year one can grow into a months-long crisis that adds to cost and fees.
Your unaddressed audit deficiencies can eventually show up in other areas of the business. Unreliable records can drive poor decisions, increase the risk of fraud and erode trust with stakeholders.
A finance team doesn’t just produce financial statements; they deliver the data that informs forecasting, budgeting and strategic planning. And when the underlying records are unreliable, so too is everything built on top of them. Skewed revenue projections and cash flow assumptions leave leaders making decisions on numbers that don’t reflect reality, while sales teams receive targets based on inaccurate projections.
Audited financial statements show that your business is well-run and help build trust with lenders and investors. But when deficiencies are not resolved, errors accumulate and a restatement can cause significant and long-lasting damage. Your board may lose confidence in management, lenders could tighten terms and investors may become more cautious.
Unresolved audit deficiencies can cause major problems as your company grows, is acquired or goes public. Consider a private company that has been growing steadily for years. Auditors may have flagged minor deficiencies along the way, but the company didn’t consider them serious enough to address. However, these can become costly or even deal-breakers when books are scrutinized during a planned transaction.
Internal controls help protect your company from fraud. But when control gaps remain, especially in segregation of duties, risk grows. If one person controls payment processing, vendor setup and account reconciliation, that risk increases with every passing year.
Audit deficiencies are not just a company problem; they can also hit closer to home. When a new investor comes in, or a board takes a closer look at the finance function and finds years of unresolved issues, the controller or VP responsible for those areas may find themselves out of a job.
When deficiencies go unaddressed, organizations can fall into a reactive cycle, spending more time managing recurring issues than improving processes or supporting growth. Your teams get stuck in catch-up mode, with little capacity for higher-value work. By addressing deficiencies early, you benefit from more reliable reporting, stronger controls and more efficient audits.
Unresolved control deficiencies can create bigger problems over time. Addressing them early can help you avoid surprises and move forward with more confidence — whether you’re preparing for an acquisition, IPO or future growth. Learn how our audit services experts can help.
Want to smooth potential audit bumps? Get our financial statement audit checklist to learn document tips, what transactions to flag and more.
