An auditor is coming to us, or why does business need an audit

05/ 11/ 2021

How can a company that wants to attract borrowed funds become attractive to investors? How to confirm the status of a reliable partner? How to show the owner if business is being conducted correctly and how economically confident is the business? Write down the recipe: initiate an audit of all the companys activities, find a good auditor (preferably from the TOP-10 audit companies of Ukraine), announce to all departments, primarily the financial one, that in the next few months they will have to spend a lot of time with papers, and exhale when the report the auditor will be in your hands. Now lets take a look at these ingredients using the example of G.R. Agro, which recently conducted an audit of all lines of business. Synergy effect on the example of G.R. Agro. G.R. Agro is an international group of companies headquartered in Canada. It has been present on the Ukrainian market since 2015. She started her work as a foreign trader: she bought grain from local farmers and grain elevators. But a year later she began to develop her elevator direction. According to the chief operating officer of G.R. Agro Artem Rempen, successful trading is not possible without our own elevator capacities. “You will not be able to increase volumes if you do not have elevators in your assets. Likewise, an elevator without trading is an asset no one needs,” said G.R. Agro Operating Director Artem Rempen. Today the company has five elevators in the Dnipropetrovsk and Zaporozhye regions. The company is actively developing its logistics area, in particular, in addition to the vehicle fleet, it can now send cargo to the port and along the river. According to Artem Rempen, the company was gradually building up its assets. And today, one line of business strengthens another. The prosperity of the enterprise directly depends on the full-fledged synergistic interaction of all structural divisions. “For example, our elevators received 250 thousand tons of grain. Half of this volume is under the contract, and the other half is from the agrarians. And this second half is the raw material for trading. In the future, we can buy it from the farmers and send it to the port with our own machines at any time, if there are no wagons. Now we are seeing a shortage of corn in ports, and harvesting is already in full swing. Why are wheat and barley contracts only arriving? Because the wagons ordered a month ago are only arriving at the elevators. Accordingly, the corn, which was announced for shipment a week ago, will be delivered in three. And we always have our own vehicles for insurance ”. Why did the company need an audit?. Such a rate of scaling of the company requires attracting new investments. Therefore, G.R. Agro, having in the piggy bank the positive experience of its parent company, decided to conduct an audit of the entire business. Here it is necessary to clarify that such a check may be mandatory, or it may be proactive, when it is carried out at the request of the head and owner of the company. “When it came to insignificant borrowed funds, the banks were satisfied with the current reporting of the company, and we received these amounts. But we are growing, our sales markets are growing, so it is quite natural that we need more funds to replenish working capital. Since we have ambitious plans for further development and we are ready to work with international banks, we decided that in order to become more transparent and understandable for partners, we need to conduct a financial audit ”. - noted the CFO G.R. Agro Olga Yukhno. How was the auditor chosen?. In Ukraine, the legal basis for auditing is determined by the Law of Ukraine On Auditing. According to him, the audit can only be carried out by certified auditors. Certification is carried out by the Audit Chamber of Ukraine. If in other countries the ratings of audit companies are made by the state regulator, then in Ukraine the above-mentioned law prohibits this. Therefore, the choice of one or another auditor falls on the shoulders of the company itself. According to Olga Yukhno, in Ukraine there are so-called “big ten” audit companies authorized in international banks. It was among them that the company decided to decide on the choice of the future auditor. Only, being new to this business, they did not take into account that the work plan of such audit companies is drawn up for a year in advance. Had to negotiate for them to bring in G.R. Agro to its busy schedules. Based on an open tender and its results, the company started working with the international auditing company BDO. “The company was chosen based on several parameters. Firstly, according to the rating among audit companies. The second important factor is the timing of the audit, and the third is the cost How to prepare for an audit?. According to Olga Yukhno, the company had been preparing for this audit over the previous three years, when it set itself the goal of scaling its business. During this period, inside G.R. Agro was reorganized. In particular, they rebuilt the companys financial and legal structures, got rid of obsolete and unnecessary assets, and also attracted new ones. “Conducting an audit is a labor-intensive process in which all departments of the company were involved. But if we talk about operational preparation, then the main burden fell on the shoulders of the accounting department. The specialists of this service needed to prepare primary documents, which meant that they had to spend a lot of time in the archives. Since the check took place online, each document had to be scanned and sent. If in the process of work the auditor had questions, then it was necessary to send additional documents. As a result, our accounting service interacted with auditors in real time on additional requests. How is a grain trader audited?. Much has been written and said about how companies whose main resource is land are assessed, but how are grain traders audited? According to the chief operating officer of G.R. Agro Artem Rempen, there are no nuances in its implementation, since trading itself is a fairly simple operation. During the audit, the auditors studied the entire chain of formation and execution of transactions. The main difficulty was the large collection of documents. Since the audit was carried out immediately in 2 years, the specialists had to raise the entire archive. Our company mostly trades with multinational companies, so the auditors were interested in documents for export delivery. We also provided materials confirming the purchase of grain from farmers: sales contracts and all the papers that were prepared for these sales. As you can see, there is nothing complicated, it was just necessary to work with the documents. And he notes that the audit did not affect the work of the trading department, although it was carried out during working hours. During the audit, the auditors did not withdraw a single transaction, not a single purchase and sale. According to Artem Rempen, for them it was also an indicator that the company was working transparently and in accordance with the regulatory document flow. Elevator audit: what you need to know?. An audit can be financial, and it was discussed above, or it can be technological. Within the framework of the latter, in addition to finance, technical and project documentation, technical condition of equipment, networks, management and quality control systems, and production organization systems are subject to verification. In this case, the auditors work not only online, but also go to the site. Based on the results of the inspection, they give their expert opinion on whether the condition of the equipment meets the requirements of regulatory documents, to what extent certain technical solutions are reasonably applied at elevators. “At first, the auditors studied the technical and design documentation directly at the facility, made their calculations. Then appraisers and technical specialists came to see how the equipment works, what kind of reconstruction was carried out. They just captured part of the season. As part of the technological audit, an independent assessment of assets was also carried out, based on the results of which the market value of all elevators was determined, ”said Artem Rempen. And notes that through the audit, the company also confirmed ownership and control of its assets. Logistics audit. In G.R. Agro audit of the logistics area included the inspection of hired equipment - cars and wagons that the company leases. It was necessary to document all shipments, which were then correlated with supply contracts. And in parallel, an audit of automotive logistics was carried out. To this end, the company provided auditors with access to its reporting base. In G.R. Agro uses the 1C system: vehicle management. The auditors correlated this base either with contracts with clients who hired vehicles, or with the companys supplies. Likewise, as in the case of elevators, an independent valuation of assets was carried out and the market value of vehicles was determined. The auditor left, what next?. According to the financial director Olga Yukhno, 5 months have passed since the signing of the contract with the audit company and until the results of the audit were received. The term is not short, but it must be borne in mind that the audit was carried out immediately in two years. Based on the results of the audit, recommendations were received to strengthen measures to combat COVID-19 and to work out a mechanism in which as many employees as possible are transferred to remote work. The auditors also recalculated the debt-to-EBITDA ratio and gave a recommendation on how not to overstep it. What other bonuses did G.R. Agro? Olga Yukhno highlights the following: ✅ it is an indicator of transparency and sustainable business development for partners (multinational companies and agricultural producers); ✅ for the owner of the company and the management - calmness and confidence in the safety of the company. This means that the indicators that the management declares correspond to reality; ✅ confirmation of the declared financial results; ✅ confirmation of equity: assets and bringing them to market value; ✅ the ability to promptly attract external investment. “Based on the results of the audit, our class of borrower has grown in front of banks. This also reduces the cost of resources that we can attract. Therefore, an audit is one of the necessary steps that had to be taken in order for us to go forward and not stop. Todays markets are dynamic, and if you want to move somewhere, you need to do it very quickly. In turn, Artem Rempen explains that the company reinvests all its profits. At the moment, her portfolio includes several large projects, which are partially carried out at their own expense. For these projects to be developed, it is necessary to attract external investments. He hopes that the audit will help the company in this. Whats next? G.R. Agro in this marketing year has increased its revenue by 30%, despite a poor harvest in the region (Dnepropetrovsk, Zaporozhye regions). The company managed to benefit from high grain prices. For the new season G.R. Agro has high hopes and hopes that all plans will be fulfilled. She also made a decision for herself that the audit will now be carried out annually. And already in November he signs an agreement with an auditing company. When we asked Olga Yukhno to share the secrets of how to conduct an audit without a headache, she replied with a smile that she needed to prepare for it every day. Maintain quality records, ensure correct document flow, interact with all divisions of the company. And then you will treat the audit as an ongoing process, and you wont even need headache pills.

Write down the recipe: initiate an audit of all the company’s activities, find a good auditor (preferably from the TOP-10 audit companies of Ukraine), announce to all departments, primarily the financial one, that in the next few months they will have to spend a lot of time with papers, and exhale when the report the auditor will be in your hands. Now let’s take a look at these ingredients using the example of G.R. Agro, which recently conducted an audit of all lines of business.

Synergy effect on the example of G.R. Agro

G.R. Agro is an international group of companies headquartered in Canada. It has been present on the Ukrainian market since 2015. She started her work as a foreign trader: she bought grain from local farmers and grain elevators. But a year later she began to develop her elevator direction. According to the chief operating officer of G.R. Agro Artem Rempen, successful trading is not possible without our own elevator capacities.

“You will not be able to increase volumes if you do not have elevators in your assets. Likewise, an elevator without trading is an asset no one needs,” said G.R. Agro Operating Director Artem Rempen.

Today the company has five elevators in the Dnipropetrovsk and Zaporozhye regions. The company is actively developing its logistics area, in particular, in addition to the vehicle fleet, it can now send cargo to the port and along the river.

According to Artem Rempen, the company was gradually building up its assets. And today, one line of business strengthens another. The prosperity of the enterprise directly depends on the full-fledged synergistic interaction of all structural divisions.

“For example, our elevators received 250 thousand tons of grain. Half of this volume is under the contract, and the other half is from the agrarians. And this second half is the raw material for trading. In the future, we can buy it from the farmers and send it to the port with our own machines at any time, if there are no wagons. Now we are seeing a shortage of corn in ports, and harvesting is already in full swing. Why are wheat and barley contracts only arriving? Because the wagons ordered a month ago are only arriving at the elevators. Accordingly, the corn, which was announced for shipment a week ago, will be delivered in three. And we always have our own vehicles for insurance ”.

Why did the company need an audit?

Such a rate of scaling of the company requires attracting new investments. Therefore, G.R. Agro, having in the piggy bank the positive experience of its parent company, decided to conduct an audit of the entire business. Here it is necessary to clarify that such a check may be mandatory, or it may be proactive, when it is carried out at the request of the head and owner of the company.

“When it came to insignificant borrowed funds, the banks were satisfied with the current reporting of the company, and we received these amounts. But we are growing, our sales markets are growing, so it is quite natural that we need more funds to replenish working capital. Since we have ambitious plans for further development and we are ready to work with international banks, we decided that in order to become more transparent and understandable for partners, we need to conduct a financial audit ”. – noted the CFO G.R. Agro Olga Yukhno.

How was the auditor chosen?

In Ukraine, the legal basis for auditing is determined by the Law of Ukraine “On Auditing”. According to him, the audit can only be carried out by certified auditors. Certification is carried out by the Audit Chamber of Ukraine. If in other countries the ratings of audit companies are made by the state regulator, then in Ukraine the above-mentioned law prohibits this. Therefore, the choice of one or another auditor falls on the shoulders of the company itself.

According to Olga Yukhno, in Ukraine there are so-called “big ten” audit companies authorized in international banks. It was among them that the company decided to decide on the choice of the future auditor. Only, being new to this business, they did not take into account that the work plan of such audit companies is drawn up for a year in advance. Had to negotiate for them to bring in G.R. Agro to its busy schedules. Based on an open tender and its results, the company started working with the international auditing company BDO.

“The company was chosen based on several parameters. Firstly, according to the rating among audit companies. The second important factor is the timing of the audit, and the third is the cost “

How to prepare for an audit?

According to Olga Yukhno, the company had been preparing for this audit over the previous three years, when it set itself the goal of scaling its business. During this period, inside G.R. Agro was reorganized. In particular, they rebuilt the company’s financial and legal structures, got rid of obsolete and unnecessary assets, and also attracted new ones.

“Conducting an audit is a labor-intensive process in which all departments of the company were involved. But if we talk about operational preparation, then the main burden fell on the shoulders of the accounting department. The specialists of this service needed to prepare primary documents, which meant that they had to spend a lot of time in the archives. Since the check took place online, each document had to be scanned and sent. If in the process of work the auditor had questions, then it was necessary to send additional documents. As a result, our accounting service interacted with auditors in real time on additional requests. “

How is a grain trader audited?

Much has been written and said about how companies whose main resource is land are assessed, but how are grain traders audited? According to the chief operating officer of G.R. Agro Artem Rempen, there are no nuances in its implementation, since trading itself is a fairly simple operation. During the audit, the auditors studied the entire chain of formation and execution of transactions.

“The main difficulty was the large collection of documents. Since the audit was carried out immediately in 2 years, the specialists had to raise the entire archive. Our company mostly trades with multinational companies, so the auditors were interested in documents for export delivery. We also provided materials confirming the purchase of grain from farmers: sales contracts and all the papers that were prepared for these sales. As you can see, there is nothing complicated, it was just necessary to work with the documents.”

And he notes that the audit did not affect the work of the trading department, although it was carried out during working hours. During the audit, the auditors did not withdraw a single transaction, not a single purchase and sale. According to Artem Rempen, for them it was also an indicator that the company was working transparently and in accordance with the regulatory document flow.

Elevator audit: what you need to know?

An audit can be financial, and it was discussed above, or it can be technological. Within the framework of the latter, in addition to finance, technical and project documentation, technical condition of equipment, networks, management and quality control systems, and production organization systems are subject to verification. In this case, the auditors work not only online, but also go to the site.

Based on the results of the inspection, they give their expert opinion on whether the condition of the equipment meets the requirements of regulatory documents, to what extent certain technical solutions are reasonably applied at elevators.

“At first, the auditors studied the technical and design documentation directly at the facility, made their calculations. Then appraisers and technical specialists came to see how the equipment works, what kind of reconstruction was carried out. They just captured part of the season. As part of the technological audit, an independent assessment of assets was also carried out, based on the results of which the market value of all elevators was determined, ”said Artem Rempen.

And notes that through the audit, the company also confirmed ownership and control of its assets.

Logistics audit

In G.R. Agro audit of the logistics area included the inspection of hired equipment – cars and wagons that the company leases. It was necessary to document all shipments, which were then correlated with supply contracts.

And in parallel, an audit of automotive logistics was carried out. To this end, the company provided auditors with access to its reporting base. In G.R. Agro uses the 1C system: vehicle management. The auditors correlated this base either with contracts with clients who hired vehicles, or with the company’s supplies.

Likewise, as in the case of elevators, an independent valuation of assets was carried out and the market value of vehicles was determined.

The auditor left, what next?

According to the financial director Olga Yukhno, 5 months have passed since the signing of the contract with the audit company and until the results of the audit were received. The term is not short, but it must be borne in mind that the audit was carried out immediately in two years.

Based on the results of the audit, recommendations were received to strengthen measures to combat COVID-19 and to work out a mechanism in which as many employees as possible are transferred to remote work. The auditors also recalculated the debt-to-EBITDA ratio and gave a recommendation on how not to overstep it.

What other bonuses did G.R. Agro? Olga Yukhno highlights the following:

✅ it is an indicator of transparency and sustainable business development for partners (multinational companies and agricultural producers);

✅ for the owner of the company and the management – calmness and confidence in the safety of the company. This means that the indicators that the management declares correspond to reality;

✅ confirmation of the declared financial results;

✅ confirmation of equity: assets and bringing them to market value;

✅ the ability to promptly attract external investment.

“Based on the results of the audit, our class of borrower has grown in front of banks. This also reduces the cost of resources that we can attract. Therefore, an audit is one of the necessary steps that had to be taken in order for us to go forward and not stop. Today’s markets are dynamic, and if you want to move somewhere, you need to do it very quickly. “

In turn, Artem Rempen explains that the company reinvests all its profits. At the moment, her portfolio includes several large projects, which are partially carried out at their own expense. For these projects to be developed, it is necessary to attract external investments. He hopes that the audit will help the company in this.

What’s next? G.R. Agro in this marketing year has increased its revenue by 30%, despite a poor harvest in the region (Dnepropetrovsk, Zaporozhye regions). The company managed to benefit from high grain prices. For the new season G.R. Agro has high hopes and hopes that all plans will be fulfilled.

She also made a decision for herself that the audit will now be carried out annually. And already in November he signs an agreement with an auditing company. When we asked Olga Yukhno to share the secrets of how to conduct an audit without a “headache”, she replied with a smile that she needed to prepare for it every day. Maintain quality records, ensure correct document flow, interact with all divisions of the company. And then you will treat the audit as an ongoing process, and you won’t even need headache pills.