An audit does not begin when the auditor walks through the door. It begins the moment a company starts preparing its financial records, controls, and documentation for external examination. The companies that sail through audit fieldwork in two weeks are the ones that spent the preceding months making sure everything is in order before anyone asked. The ones that spend six weeks in fieldwork with constant queries are the ones that did not.
This article describes the four-phase audit readiness process that BMC runs with Spanish SMEs. For background on who is required to audit and the common gaps that arise, see the complete audit readiness guide for Spain.
Overview: Four Phases
| Phase | Duration | Primary objective |
|---|---|---|
| Phase 1: Diagnostic | 2–4 weeks | Identify and prioritise gaps |
| Phase 2: Remediation | 2–6 months | Close the gaps |
| Phase 3: Dry-run | 3–4 weeks | Simulate the audit |
| Phase 4: Go-live | Duration of audit | Support actual fieldwork |
Total elapsed time from engagement start to completed audit opinion: typically five to ten months for a first-time audit of a Spanish SME.
Phase 1: Diagnostic and Gap Assessment
What Happens
The diagnostic phase is a structured review of everything the auditor will examine. BMC’s team works through seven areas:
- Accounting policies — Are they documented? Do they comply with PGC (RD 1514/2007)? Are they applied consistently year to year?
- General ledger quality — Can the trial balance be reconciled to the balance sheet without manual adjustment? Are all accounts aged and supported?
- Close process — Is there a documented month-end and year-end close checklist? What is the average close time?
- Related-party register — Are all related parties (article 231 LSC) identified? Are transactions documented, priced, and disclosed in the notes per PGC note 25?
- ICFR documentation — Are controls over order-to-cash, purchase-to-pay, payroll, and financial close documented? Have they been tested?
- Tax provisioning — Are current and deferred tax positions calculated and reconciled to filed returns?
- Prior-year findings — If any prior audit or review exists, what findings were raised and have they been resolved?
Deliverables
- Gap register (typically 20–80 items, prioritised by risk)
- Estimated remediation timeline
- Resource requirements (internal vs external)
Who Is Involved
- BMC advisor (lead): designs and executes the review
- Finance director or senior accountant: provides access to systems and documentation
- Management: one session to review findings and approve the remediation plan
Duration
Two to four weeks for a single-entity SME. Larger groups with multiple subsidiaries or foreign parents may require six to eight weeks.
Phase 2: Remediation
What Happens
Remediation is the substantive work of closing the gaps identified in Phase 1. It is typically the longest phase and is where the most value is created. Activities fall into three categories:
Documentation work:
- Drafting accounting policy memoranda (revenue recognition, provisions, leases, financial instruments, fixed assets, inventory)
- Preparing related-party agreements and intercompany loan documentation
- Mapping the close process and creating a written close checklist
- Documenting existing controls in a control library
Accounting clean-up:
- Resolving aged reconciling items in key accounts (intercompany, provisions, accruals)
- Booking prior-period adjustments where permitted under PGC
- Calculating and booking deferred tax positions
- Reconciling the fixed asset register to the balance sheet
Control design and implementation:
- Implementing or formalising controls over financial close
- Segregation of duties review (often limited in small companies — compensating controls are documented where full segregation is not possible)
- Approval workflow documentation for journals, payments, and accruals
Timelines
| Company type | Remediation duration |
|---|---|
| Simple SME, clean books, <€5M turnover | 6–10 weeks |
| SME, some gaps, €5M–€20M turnover | 3–5 months |
| SME with significant related-party complexity or backlog | 5–8 months |
| Group with subsidiaries, IFRS consolidation required | 6–12 months |
Role of the Auditor During Remediation
The appointed auditor should not be involved in remediating the gaps — this would compromise independence under Ley 22/2015, article 16 (prohibition on providing non-audit services that create self-review threats). The remediation work is done either internally or by an independent advisor such as BMC.
The auditor can provide general guidance on audit expectations, but should not draft accounting policies, design controls, or prepare the financial statements.
Phase 3: Dry-Run Review
What Happens
The dry-run is a rehearsal for the real audit. BMC takes the perspective of the auditor and applies a risk-based examination to the remediating company:
- Requests the same population of documents an auditor would request (invoices for material revenue items, fixed asset disposals, significant journal entries, related-party agreements, bank confirmations)
- Tests key controls by examining a sample of transactions and tracing them through the documented process
- Prepares a set of review points — items that would generate an auditor query or a proposed audit adjustment
- Presents findings to management and the finance team
What the Dry-Run Surfaces
In a well-prepared company, the dry-run typically produces a short list of minor documentation gaps — missing approval signatures, a policy that needs clarification, one or two accrual items that need to be adjusted. In a less-prepared company, it may surface material items: undisclosed related-party transactions, incorrect lease accounting, or a deferred tax position that is materially wrong.
Whatever it surfaces, it surfaces it three to six weeks before the real audit — when there is time to fix it rather than explain it.
Timing
The dry-run should conclude at least four weeks before the real audit fieldwork begins. This gives adequate time to address any findings without compressing the year-end close timetable.
Phase 4: Go-Live (Audit Support)
What Happens
Once the real audit begins, BMC supports management during fieldwork:
- Preparing the initial documentation package (trial balance, draft financial statements, supporting schedules, related-party disclosure)
- Coordinating the flow of auditor information requests (PBC — Provided by Client list)
- Responding to technical queries on accounting policies, specific transactions, or tax provisions
- Reviewing proposed audit adjustments before management responds
Duration
For a well-prepared SME, audit fieldwork typically runs one to two weeks of concentrated activity plus a review period. Companies that have completed Phases 1–3 thoroughly will experience shorter fieldwork and fewer queries.
After the Audit
The audit cycle does not end with the audit opinion. The gap register is updated with any findings raised by the auditor, remediation actions are tracked, and the audit readiness posture is maintained so that the next year’s audit is a continuous process rather than an annual emergency.
The Interdependence of Phases
The phases are sequential by design. Skipping the diagnostic and going straight to remediation means remediating the wrong things. Skipping the dry-run means finding out what is wrong during real fieldwork, when the auditor is billing hours for the delay. Each phase reduces the cost and disruption of the next.
For a structured self-assessment of where your company stands today, use the audit readiness assessment checklist. For detail on what BMC delivers in each phase, see audit readiness services for SMEs.
External references:
- ICAC — Normas de Auditoría NIA-ES — Spanish audit standards (NIA-ES adaptations of ISAs)
- BOE — Ley 22/2015 de Auditoría de Cuentas — independence and non-audit services rules
- IAASB — International Standards on Auditing — ISA framework underlying NIA-ES
