“Hooray! It’s audit day,” said no one, ever!
Independent audits are a necessary, if not very fun, fact of life for many businesses. They provide reasonable assurance to you, your lenders, investors or potential buyers that your financial statements are free from material misstatement. Their assurance can help your business secure the financing, investments or valuations you need to accomplish your goals.
The key to taking the pain out of an annual audit is to make it as efficient as possible so that it is completed on schedule. This allows you and your team to meet your reporting deadlines and get back to the important work of running and growing your business.
If you dread your annual audit, or are nervous about your first-ever audit, we have some suggestions that can help reduce the pain. Working with your auditors before and during the audit not only minimizes the disruption to your ongoing operations, but it also can help keep the audit fee down.
- Get a checklist and complete it as quickly as possible. During the planning stage of any audit, the auditors should provide you with a list of items that they will want to review. They might refer to it as the “client assistance list” or “prepared by client list.” Ideally, your client assistance list will be customized so that it includes only items that are relevant to your company and will be given to you at least a month or two before the start of fieldwork. The schedules, bank reconciliations and other documentation on that list allow your auditors to select audit samples and to identify transactions to be audited, potential issues to be addressed or questions to be answered by you. The sooner you give your auditors the information they need, the sooner they can select items for testing and the more time you’ll have to find any additional support they might need for their tests.
- Maintain and review financial records regularly. Most of the items on the checklist are schedules that should be completed and reviewed during the month-end and year-end accounting closing processes and as part of your internal control processes. When transactions are recorded and verified on a regular basis, the financial statements are more likely to be accurate and problems can be addressed and resolved before the audit. If you are not looking at these schedules or reconciliations on regular basis, your audit may stall before it can even get started.
- Use your auditors’ preferred document-sharing platform. Audit efficiency took a huge leap forward with the advent of document-sharing portals. These web-based “data rooms” allow everyone involved in the audit to securely share, access and modify documents at the same time. Ask your auditors about their preferred document-sharing protocols, as well as any suggestions about how to use that platform to its full potential. Our firm uses Smartsheet, which allows us to group related items together within a single dynamic spreadsheet-like application. For example, one line might include the year-end bank reconciliation, another the monthly bank statements, and yet another could have a list of outstanding accounts payable. Our clients can then upload the requested schedules and documents to each line. Keeping the client-provided support with the related auditor requests cuts down on the time the auditors might spend searching, giving them more time for sampling and testing, and your team more time to answer questions and provide the support needed to complete the audit.
- Assign a point-person to keep information flowing. By the time the auditors leave your office, they should be essentially finished with your audit. However, sometimes auditors don’t get answers to all of their questions before the end of the fieldwork. Unresolved issues can stretch the audit timeline for weeks or even months—and that means more disruption for your team and possible missed reporting deadlines. To avoid this scenario, assign a point person to be responsible for answering questions and providing support immediately. This point person should check the status of the client assistance checklist on a daily basis during the fieldwork to ensure all requested information has been provided and your auditors are not waiting for support that may or may not require extensive audit testing.
- Provide timely confirmations. One of the most time-consuming audit activities is procuring transaction confirmations from customers, vendors and financial institutions. It can become a major speed-bump in your audit if the confidential transaction information isn’t released to the audit firm. Centralized, web-based confirmations have streamlined this step significantly by sending automated emails that prompt you to approve the release of confidential information with just a few clicks. Again, appointing a point person who will handle these requests as they come in can help ensure the audit moves ahead on schedule.
Whether you’re hoping to expand your line of credit with the bank or you’re getting ready for a merger or acquisition, audited financials are an important step on the way to growing your business. Following these suggestions won’t make you cheer for audit day, but you could look back on the time your auditors spent in your office and say, “Well, that wasn’t so bad!”