Whether you're a startup or an established company, being audit-ready is critical. An audit isn’t just about numbers—it’s about trust, compliance, and operational transparency. At TGS Egypt, we’ve seen how a few overlooked issues can turn into major liabilities.
Here are the top 5 audit red flags that could trigger complications or even legal trouble—and how to safeguard your business against them.
Why it’s a red flag:
Auditors rely on financial records to verify the accuracy of your reporting. If invoices, contracts, or journal entries are missing or inconsistent, it raises immediate concerns about transparency or fraud.
Common scenarios:
Unfiled invoices or receipts
Transactions without supporting documentation
Inconsistencies between bank statements and ledgers
How to avoid it:
Maintain organized, cloud-backed records
Implement a standardized document management system
Conduct regular internal reconciliations
Tip from TGS: Use digital tools for real-time documentation and tie each transaction to an approval workflow.
Why it’s a red flag:
Internal controls protect against fraud, error, and mismanagement. Without them, auditors will flag you as high-risk, which could result in extended audits or tax authority inquiries.
Examples of weak controls:
One person controls both purchasing and payments
No approval process for expenses
Lack of segregation of duties in financial workflows
How to avoid it:
Introduce a segregation of duties matrix
Create multi-level approval chains for financial transactions
Train your staff on internal control procedures
Tip from TGS: Even small businesses need basic internal controls—it’s not just for large enterprises.
Why it’s a red flag:
Improper revenue recognition—such as booking income too early or too late—can misrepresent your financial position and violate IFRS or Egyptian standards.
Watch for:
Recording sales before delivery
Not deferring revenue from prepaid services
Manual adjustments without justification
How to avoid it:
Align revenue recognition with contractual obligations
Follow IFRS 15 or relevant Egyptian GAAP standards
Keep clear audit trails for all adjustments
Tip from TGS: Automate revenue tracking based on delivery milestones, not just sales agreements.
Why it’s a red flag:
Excessive or unexplained manual journal entries may indicate attempts to manipulate results—a major warning sign for auditors.
Risk indicators:
Journal entries posted at period-end without clear purpose
Lack of review or approval process
Repeated entries from the same user
How to avoid it:
Restrict manual entries to authorized personnel only
Require justifications and digital approvals for each entry
Review logs monthly with an independent reviewer
Tip from TGS: Set audit rules in your ERP system to flag unusual entries automatically.