The Questions You’re Least Prepared to Answer
The Questions You’re Least Prepared to Answer if Your Business Were Audited Tomorrow An Annotated Case File
Case File Overview
Business Name: We’re Calling It Yours Ltd. Audit Status: Surprise Visit Preparedness Level: Confident until Question # Three Notes from Management: “We thought we had that somewhere.”
This annotated case file walks through the most common audit questions that catch business owners off guard. Each section includes what the auditor asks, what business owners usually say, and what the auditor wants to hear.
Read this as both a warning and a friendly nudge to do well.
File Exhibit A: “Can You Explain Your Revenue?”
Auditor’s Question: How does your business make money, and how is that revenue recorded?
Typical Answer: Well, customers pay us.
Auditor’s Question: How?
Typical Answer: Sometimes by invoice. Sometimes by e-transfer. Sometimes by cheque.
What the Auditor Is Looking For: A clear explanation of how money comes in, when it is recorded, and where it ends up in your books. Not just totals, but timing. Cash versus accrual matters here.
Case Note: If your explanation starts with “It depends” and ends with “my bookkeeper oversees that,” you are underprepared.
File Exhibit B: “Why Did the Expenses Jump in March?”
Auditor’s Question: Can you explain the spike in expenses during this period?
Typical Answer: Well, March was a weird month. Very weird.
What the Auditor Is Looking For: A logical business reason supported by receipts. Was it new equipment? A marketing push? Needed repairs? Not “we were busy for some reason” or “inflation.”
Case Note: Auditors love patterns. They love explanations even more. They do not love mystery spikes that look like a mountain range on a chart especially when they happen over night.
File Exhibit C: “Where Are Your Receipts?”
Auditor’s Question: Can you provide receipts for these expenses?
Typical Answer: Hmm…I think there are some pictures of them. Somewhere. ‘Possibly on our bookkeeper’s phone.
What the Auditor Is Looking For: Actual documentation. Digital copies are fine. Shoebox accounting is tolerated but judged silently.
Case Note: If your receipt system relies on memory, or the glove box, this is your wake-up call.
File Exhibit D: “Who Has Access to the Bank Account?”
Auditor’s Question: Who can move money in and out of the business account?
Typical Answer: Me and my partner. Plus, our office manager. ‘Possibly my wife. It’s a long story.
What the Auditor Is Looking For: Clear controls. Limited access. Separation between approving payments and recording them.
Case Note: Auditors get nervous when too many people can move money without oversight. You should too.
File Exhibit E: “How Do You Manage Payroll?”
Auditor’s Question: Can you explain your payroll process and deductions?
Typical Answer: Everyone gets paid on Friday. The software figures out the rest.
What the Auditor Is Looking For: Confirmation that deductions are correct, remitted on time, and reconciled properly. Software helps, but the responsibility still sits with you.
Case Note: Blaming software glitches during an audit is like blaming your calculator for bad mathing.
File Exhibit F: “What Is Your Backup Plan?”
Auditor’s Question: If your records were lost tomorrow, what would you do?
Typical Answer: Umm… Panic?
What the Auditor Is Looking For: Backups. Cloud storage. Redundancy. Something more advanced than hope.
Case Note: Audits love documentation. Fires, floods, and failed hard drives do not care about good intentions.
Summary
Most business owners do not end up unprepared because they are careless. They are unprepared because day to day operations take over, and financial systems grow in pieces.
An audit does not require perfection. It requires clarity, consistency, and proof.
If your answers today feel shaky, that is good news. Why? Because you have time to fix them before anyone with a clipboard asks.
Because the worst audit question is not the hardest one. It is the one you assumed no one would ask.