How to Survive Your Annual Audit
Does your company undergo an annual audit, or is it about to be audited for the first time? If so, it’s likely that just the term “audit” strikes fear into year heart. An audit can seem like a disruptive annoyance, but it doesn’t have to be. Like most things, preparation is key. If you and your team are organized, have been keeping thorough records, and have been performing certain monthly tasks, your auditors will most likely be in and out in no time. They will meet your deadline, making sure you get your audited financial statements to your Board or bank on time and making you and your team look like rock stars. But, if your audit seems to catch you by surprise each year, you run the risk of higher bills from your accounting firm, missed deadlines, fraud and errors, and some seriously frustrated staff.
With the help of a few simple processes and some initiative, you can save yourself time, save your company money, and reduce stress. Following are six ways to survive your annual audit:
1. Make a plan
Before the audit begins, schedule a face-to-face meeting with your auditor. Include key members of your staff and discuss any changes to your company’s operations or structure, as well as any concerns or issues you may have. Also share key deadlines and determine a reasonable schedule for fieldwork, interim work such as an internal controls review, and delivery of the final audited financials. Make sure your auditor understands your Board or bank deadlines and how to reach key contacts on your team if questions arise. The meeting should take an hour or two, and can even be scheduled over lunch if you don’t mind hanging out with your auditor.
2. Ask for a check list
Your auditor should provide you with a detailed checklist of the documentation they will review. In some industries, the format in which specific types of information is presented is important, so talk to your auditor about HOW you present your financial information, as well as WHAT you present. If you are preparing for your first audit, be sure to get the checklist well in advance and use it to establish or update your own monthly reconciliation and closing procedures.
3. Keep track of important documents
An audit is a review of your financial information and all the supporting documentation that corroborates how you come up with your financial assertions. Put a process in place to keep copies of documents—either hard-copies or electronic copies such as PDFs—in a safe and accessible place. The important documents can include deeds or receipts for purchases of property and equipment, financing agreements, letters from donors describing restrictions on their donations, board minutes, and corporate documents.
4. Be available
Even seasoned auditors can have questions as they review your financial information. Being responsive to their questions can keep your audit moving forward on schedule. Both management and staff should respond quickly and thoughtfully to all auditor requests for additional information.
5. Ask questions
If you are working with an outside auditor, you should feel free to contact them throughout the year whenever a question arises. They are there with expertise to address accounting questions during the year, not just at year end.
6. Be prepared
Your audit may occur every year, but it’s always in the context of the other work you and your team are doing. Planning and implementing structured processes for your day-to-day accounting practices will ensure that you are ready for your audit. It will help keep interruptions to a minimum.
Hopefully, you are already reviewing your general ledger each month to confirm that the balances match the internal financials. Unfortunately, some companies stop here, creating more work for themselves and their auditors. In addition to checking your general ledger, each month you should reconcile cash, accounts payable and receivable, fixed assets and the other major balance sheet accounts to ensure that your accounting adds up. Compare these to the details of what should be in each account, and ensure that these details have been checked for completeness. Finally, each month you should perform some level of financial analysis, comparing budgets to “actuals” and reviewing year-over-year figures to ensure that your organization is on target to meet its goals.
Being proactive and prepared is the key to a smooth audit. Ensure you ask questions and maintain open lines of communication with your accountants before, during and after the audit. You will save yourself and your staff a significant amount of time and your accountants will certainly thank you, too!
For more information about this article, or to discuss your company’s audit preparation strategy, please contact Patricia Yeager, Assurance Partner.