Executive Summary

Audit backlogs are often regarded as an administrative issue. In practice, however, they tend to become visible when a company becomes dependent on the confidence of banks, investors, buyers or auditors.

As a result, audit backlogs affect not only the audit itself, but also financing, transactions and the strategic flexibility of an organisation.

Trust is not created during a transaction

Almost every international group will, sooner or later, experience delays in the statutory audits of one or more group entities.

As long as no external party requires assurance over historical financial information, the impact may remain relatively limited.

Once a company seeks financing, enters a sale process or appoints a new group auditor, however, the perspective changes. The central issue is no longer the administration itself, but confidence in the historical financial information.

When an administrative backlog becomes a strategic risk

An audit backlog changes in nature once external stakeholders begin to base their decisions on audited financial information.

The question is then no longer whether the backlog can be cleared, but whether sufficient assurance can be obtained regarding the reliability of the available information.

For that reason, audit backlogs are often more a matter of governance and transaction readiness than a purely administrative issue.

Boardroom Insight

An audit backlog does not arise when a bank, buyer or auditor starts asking questions. It arose years earlier. External parties merely make it visible.

Why delay almost always increases complexity

Documentation becomes fragmented, employees leave, regulations change and institutional knowledge disappears.

As a result, not only do the costs of remediation increase, but so does the uncertainty faced by financiers, investors and auditors.

What successful international groups do differently

Successful organisations treat audit backlogs as part of governance and risk management.

They assess risks across the group, prioritise critical entities and engage with the group auditor at an early stage, helping to ensure that future financing or transactions are not obstructed by historical uncertainties.

Practical implications for boards

• Treat audit backlogs as a strategic risk.
• Assess outstanding audits across the entire group.
• Prioritise entities with the greatest transaction risk.
• Engage the group auditor at an early stage.
• Do not wait until an external party requires assurance.

Closing perspective

Historical financial information describes the past. Confidence in that information can materially determine an organisation’s future strategic flexibility.

Audit backlogs should therefore not be considered solely from a compliance perspective, but also from the perspective of management, governance and strategy.

Partner Quote

“An audit backlog rarely restricts a company when it arises. It restricts the company when trust becomes essential.”

— Laurens Nijssen RA