For many Cambodian entities with a 31 December financial year-end, audit preparation begins only after the accounting records have been closed. This can result in compressed timelines, missing documents, late adjustments and unnecessary pressure on management and the audit team.
Engaging an auditor before year-end does not mean completing the audit early. It means agreeing on the audit plan, identifying significant financial-reporting matters and preparing the necessary information while there is still sufficient time to address issues properly.
Cambodia’s legal and regulatory context
The Law on Accounting and Auditing, promulgated by Royal Kram No. NS/RKM/0416/006 dated 11 April 2016, applies to both enterprises and not-for-profit entities. It requires entities to maintain accounting records, prepare financial statements in accordance with applicable Cambodian accounting standards and generally complete their financial statements within three months after the end of the financial year. It also provides that financial statements form the basis for fulfilling tax obligations.
Under Prakas No. 563 MEF.PrK dated 10 July 2020 on the Obligation to Submit Financial Statements for Independent Audit, an enterprise is generally subject to independent audit when it meets at least two of the following criteria:
- Annual turnover exceeding KHR 4 billion;
- Total assets exceeding KHR 3 billion; or
- An average of more than 100 employees.
A not-for-profit entity is generally subject to independent audit when its annual expenses exceed KHR 2 billion or it has an average of more than 20 employees. Public-interest and specifically regulated entities may also be subject to audit regardless of these general thresholds.
For entities subject to Cambodian taxation, the Law on Taxation, promulgated by Royal Kram No. NS/RKM/0523/004 dated 16 May 2023, and Prakas No. 578 MEF.PrK.GDT dated 19 September 2024 on Tax on Income provide the principal legal framework for annual income-tax compliance. For a calendar-year taxpayer, the annual Income Tax Return is generally due by 31 March following the end of the tax year.
These timelines make early audit preparation particularly important.
Why early engagement matters
1. Secure an appropriate audit timetable
The months following 31 December are normally the busiest period for audit firms in Cambodia. Early appointment allows the entity and auditor to agree on interim work, final fieldwork, inventory-count attendance, reporting deadlines and information requirements.
The terms of the engagement should also be formally agreed. CISA 210, Agreeing the Terms of Audit Engagements, requires a common understanding between the auditor, management and, where appropriate, those charged with governance regarding the terms and responsibilities of the audit.
2. Identify significant matters before year-end
Significant transactions should not be assessed only when the financial statements are being finalised. These may include:
- New loans or refinancing;
- Major asset purchases or disposals;
- New revenue arrangements;
- Related-party transactions;
- Restructuring or changes in ownership;
- Legal disputes;
- Impairment indicators; and
- Unusual or complex transactions.
Early communication gives management time to determine the appropriate accounting treatment, prepare supporting calculations and obtain relevant documentation.
3. Improve accounting records and audit readiness
Before year-end, management should review bank reconciliations, receivables, payables, inventory records, fixed-asset registers, tax balances, related-party accounts and supporting contracts.
Missing documents and unexplained balances are easier to resolve during the year than during a compressed reporting period.
4. Plan inventory counts and external confirmations
Where inventory is material, the auditor may need to attend the physical count. Early engagement allows the count date, locations, procedures and treatment of obsolete or damaged inventory to be properly planned.
External confirmations from banks, customers, suppliers, lenders, lawyers and related parties may also require considerable time. Early preparation reduces the risk that outstanding responses delay the audit.
5. Use interim audit work effectively
Where appropriate, the auditor may perform certain procedures before year-end, including understanding key processes, reviewing controls, testing selected transactions and following up on prior-year findings.
Interim work does not replace the final audit, but it can identify issues earlier and reduce pressure after year-end.
What should entities do now?
Entities with a 31 December 2026 financial year-end should:
- Confirm whether an audit is required under Prakas No. 563, sector-specific audit requirement, donor agreements, financing arrangements or governing documents.
- Appoint an appropriately licensed and independent audit firm.
- Agree on the engagement terms, audit timetable and reporting deadlines.
- Review prior-year audit findings and outstanding adjustments.
- Reconcile key accounting and tax balances regularly.
- Inform the auditor promptly about significant or unusual transactions.
- Plan the year-end inventory count and prepare the required supporting schedules.
Management remains responsible for the accounting records, financial statements, estimates and judgements. Early engagement should support audit planning without transferring management responsibilities to the auditor or compromising auditor independence.
Disclaimer: This article provides general information only and does not constitute accounting, auditing, tax or legal advice. Audit and reporting requirements may vary depending on an entity’s legal form, activities, regulatory status and specific circumstances.
