Audit for a bank or an investor: what they actually ask for

When a bank or an investor asks for “an audit”, they almost never mean what the law means. The law means a statutory audit triggered by size criteria. A bank means confirmation of the numbers it is lending against. These are different engagements, and confusing them costs companies weeks and money. Here is what is actually being asked for in three typical situations.

Situation one: a bank loan

The bank does not want “something from an auditor”, it wants its own risk reduced. The credit committee looks at three things: are the assets real, is the revenue real, and are there obligations that the balance sheet does not show.

In practice this means a voluntary audit of the annual statements or, when time is short, a review under ISRE 2400. A review is cheaper and faster than an audit because the auditor performs enquiry and analytical procedures rather than the full set, and concludes in the form of negative assurance. For many banks that is enough, and it is worth asking BEFORE commissioning a full audit.

What banks look at hardest: receivables (is anything uncollectible sitting there), inventories (do they physically exist), related parties (has money been moved out), shareholder loans, and guarantees given for third-party obligations.

Situation two: an investor or a buyer of a stake

Here “audit” almost always means due diligence, which is a different job. An audit answers “are the statements reliable”. Due diligence answers “what am I buying and what are the risks”. The buyer sets the scope, and it is usually wider than an audit: tax exposure, contracts, litigation, people, dependence on key customers.

The sensible sequence is a fast financial due diligence over two or three weeks, to decide whether to continue at all, and only then deep work on specific areas. Commissioning a full audit at the start of negotiations is nearly always money spent for nothing.

Situation three: the parent company or the group auditor

A foreign owner asks for a package in the group format and often for confirmation from a local auditor as well. Here the format matters more than the depth: a report in English, structured the way the group auditor expects. We covered this separately in reporting from Ukraine to a foreign parent.

What to prepare before the first conversation

Whoever is asking, the set is the same and can be gathered in a day:

• Balance sheet and income statement for the last two years.
• Trial balance for the last year.
• A list of loans and borrowings, including from shareholders.
• Who is asking for the audit, in what format and by what date.

The last point matters most. Half the unnecessary work disappears once the auditor sees the bank’s letter: it often says “review”, while the company has already braced itself to pay for a full audit.

What we do not do

We do not perform statutory audits of financial statements at present, while our quality control review is in progress. If a bank or investor requires a statutory audit specifically, we will say so immediately and explain how to check another firm in the register. Checking the statutory audit criteria is free with us and takes one day.

What we do perform is a voluntary audit commissioned by an owner, a bank or a buyer, a review under ISRE 2400 and pre-acquisition review of a business, and those cover most of what banks and investors actually ask for.