Preparing Books, Contracts and Bank Records for Your First Audit in Sri Lanka

In your company’s first year, the team is usually focused on invoicing, payments and project delivery. Then the audit request list arrives, and you discover that contracts are sitting in employees’ inboxes, payment approvals are buried in chat messages, and bank transactions have no supporting explanation. Reconstructing the records at that point can take substantial time from both management and operational teams.

Before a first-year audit, the priority is not simply to collect a large volume of files. Each significant transaction should be traceable from its contract or commercial background through to the invoice, approval, bank receipt or payment, and accounting entry. You do not need to wait until the audit begins. Building a handover pack before the financial year closes usually makes gaps easier to identify.

A common misunderstanding is that auditors only need the general ledger and bank statements. In practice, a bank statement shows that money was received or paid; it does not automatically explain why it was paid, who approved it, which goods or services it relates to, or whether the accounting treatment matches the transaction documents. Where that evidence chain is incomplete, the audit team will usually request further explanations and supporting records.

Clarify who provides what

Audit preparation often becomes difficult not because the company has no documents, but because no one owns the document process. Before the audit starts, appoint an internal records coordinator to maintain the checklist, file versions and submission status. Finance, business teams, procurement, HR and management should each remain responsible for the original records they create.

Record category	Suggested internal owner	Action to complete before the audit
General ledger, trial balance and accounting vouchers	Finance team or outsourced accounting team	Export the books and flag unusual balances or items requiring explanation
Bank account records	Finance team and account signatories	Compile statements for the full period, balance confirmations and explanations for major transactions
Customer contracts and revenue records	Sales, project or business lead	Match contracts with invoices, delivery evidence and collections
Supplier contracts and procurement records	Procurement, project or administration lead	Match contracts with quotations, orders, acceptance records and payments
Employee and consultant expenditure	HR, administration and finance	Gather engagement documents, payment support and internal approvals
Corporate governance records	Board secretary, management or corporate secretarial provider	Compile board resolutions, authorisation documents and records of significant decisions

The records coordinator does not need to explain every business transaction personally. However, that person should be able to identify where a document is stored, which version is current, and who can answer follow-up questions from the audit team. Auditors should not have to search across multiple inboxes, personal computers and chat groups for evidence.

Organise contracts and supporting documents by transaction chain, not folder name

For significant items such as revenue, procurement, related-party dealings, consulting services, asset purchases and cross-border payments, create a document pack for each transaction or project. A traceable transaction pack will commonly include:

• Signed contracts, purchase orders, accepted quotations or other commercial basis documents;
• Counterparty details, together with internally maintained supplier or customer onboarding records;
• Invoices, payment requests, purchase orders, delivery notes, acceptance records or evidence that services were completed;
• Internal approval records, including the authorised person, approval date and any exception notes;
• Bank transfer confirmations, relevant bank statement pages and an explanation of the payment or receipt purpose;
• The accounting voucher number, account description and index of supporting records;
• Written confirmations of any amendments, refunds, discounts, cancellations or postponements.

File names do not need to be complicated, but they should be understandable to someone outside the project team. A format such as “date—counterparty—project—document type—version” can work well. Contracts, invoices and payment records should ideally use the same project number or internal reference number, so that auditors do not need to match them by guessing from the amount.

Here is another common misconception: if a payment went through the bank, the supporting documentation is complete. In reality, a bank confirmation proves payment, but it is not complete evidence of the underlying transaction, service delivery or internal authorisation. This is particularly relevant for consulting fees, prepayments, related-party amounts and cross-border service fees. If the business background has not been documented, the cost of explaining the transaction later is often much higher.

Prepare a bank reconciliation schedule

Before the first audit, the finance team should complete a basic reconciliation for each bank account, month by month. The purpose is not to reach conclusions on behalf of the auditor. It is to identify unrecorded, duplicated or unexplained items early.

At a minimum, the reconciliation schedule can include the bank transaction date, amount, payer or payee, bank narrative, corresponding accounting voucher number, related contract or invoice number, internal person responsible for explanation, and current status. If a transaction cannot be matched immediately, do not create a description simply to close the gap. Go back to the business team, account signatory or transaction records to confirm the facts.

The following items should be listed separately:

• Receipts or payments around the financial year-end that have not yet been recorded or settled;
• Amounts paid or received on the company’s behalf by headquarters, related parties, directors or third parties;
• Prepayments, deposits, security deposits, employee advances and reimbursements;
• Bank charges, exchange differences and automatic debits;
• Transfers between bank accounts;
• Transactions that are large, have vague payment descriptions or lack commercial documentation.

If your company makes cross-border payments or receives overseas funds, the transaction-background documents retained by the bank are also worth filing alongside the accounting records. For internal response arrangements when a bank asks for additional background documents for a cross-border payment, see the published article “How Companies Can Organise an Internal Response When a Bank Requests Additional Background Documents for Cross-Border Payments”.

Complete four internal checks before sending the books to the audit team

Internal checks before an audit do not replace the audit. They help reduce obvious breaks in the documentation trail.

1. Check whether contract values and book values can be explained

Prepare a comparison schedule for significant contracts showing the total contract value, payment milestones, currency, tax arrangements and actual invoicing or payment progress. If the actual amount differs from the contract, retain variation agreements, discount confirmations, supplementary orders or other explanatory documents.

2. Check whether revenue and costs are supported by evidence of business activity

Revenue is not supported by an invoice alone, and costs are not supported by a supplier bill alone. Confirm that the business team can provide delivery records, acceptance records, service reports, project progress records or other documents showing that the transaction occurred. Required documents may vary by business model and should be confirmed by the appointed professional firm based on your company’s actual circumstances.

3. Check whether outstanding balances can be explained

Trade receivables, trade payables, prepayments, other receivables, related-party balances and cash-related balances are often subject to repeated questions during a first audit. For each material or long-outstanding balance, prepare a short explanation covering why it arose, how it is expected to be settled, whether supporting records exist, and who is responsible for follow-up.

4. Check whether fixed assets and office expenditure are properly supported

For computers, furniture, equipment, fit-outs and office-related expenditure, retain procurement documents, payment records, delivery or acceptance records, asset registers and information on where the assets are used. Office leases, deposits and fit-out arrangements should also be retained together with the lease or related agreements, rather than relying only on payment screenshots.

What mainly affects audit fees and timing

The cost and completion timeline for a first audit are not determined by company size alone. The completeness of the records, transaction volume, number of bank accounts, cross-border or related-party transactions, clarity of contracts, whether the books have been updated throughout the year, and management’s ability to answer questions promptly can all affect the professional firm’s workload.

When requesting a quotation from an audit or accounting firm, provide a one-page factual summary: your business activities, financial year period, number of accounts, expected transaction volume, employee and consultant arrangements, main contract types, whether there is inventory or fixed assets, and whether there are overseas receipts, payments or related-party dealings. This makes it easier for the quotation to define its service scope and assumptions.

When comparing quotations, do not look only at the total price. Confirm whether the scope includes bookkeeping clean-up, preparation of audit support documents, tax filing assistance, management communications and rounds of additional document requests. Also ask whether additional fees may apply if the records are materially incomplete. The expected audit completion timeline should be assessed by the appointed audit professional based on the state of the records, scope of work and supervisory requirements. It should not be fixed before the records have been reviewed.

Treat the first audit as the start of a long-term recordkeeping process

Issues identified in the first audit often reappear in the next financial year: contracts are not archived, payments have no project reference, evidence of delivery is not retained, and bank transactions are not explained on time. A more practical approach is to turn the documents that auditors repeatedly request into monthly or quarterly routine actions after the audit handover.

For example, finance can complete bank reconciliations every month; business leads can archive delivery evidence at project milestones; procurement can confirm that contracts and acceptance documents are available before payment; and the records coordinator can review shared folders quarterly for missing documentation. At the next audit, you will then provide not a set of documents assembled at the last minute, but a recordkeeping system that has been operating throughout the year.

MMD Business Support can assist with organising document checklists, coordinating internal record owners, and connecting you with appropriately qualified accounting, audit and tax professionals for specific professional work. Audit opinions, tax treatment and statutory requirements should be confirmed based on the latest advice from the appointed professional firm and the relevant Sri Lankan authorities.

Official information is available from the Sri Lanka Inland Revenue Department: https://www.ird.gov.lk/ (page reviewed on 7 September 2026).

This content is provided for general information only and does not constitute legal, tax or immigration advice. Specific requirements should be confirmed with the relevant Sri Lankan authorities and appointed licensed professionals.