Keys to a Successful Audit
No one likes hearing the word audit. Whether it’s in reference to an IRS audit or a financial statement audit, hearing that word invokes a feeling of dread; but that doesn’t have to be the case. The key to surviving an audit with your sanity intact is to be prepared, and there is much more to getting ready for an audit than just closing the books and reconciling accounts. Here’s a list of tips to help you have a successful audit experience.
- Plan a Post-Audit Debrief
The truth is that audit preparation should be happening all year round. If you start preparing a week before fieldwork is scheduled, then your audit might not go smoothly. The best time to start is after last year’s audit ended; issues will still be fresh in your mind, and you will have all year to prepare properly.
Once last year’s audit is finalized, the first (and easiest) thing to do is book any audit adjustments. It is important to have a correct starting point so that any internal reports prepared subsequent will be accurate. Now is also the time to identify why an audit adjustment was made, and to implement procedures to prevent any similar adjustments on next year’s audit.
Once the numbers are squared away, it is a good time to address any management letter comments. The management letter typically deals with weaknesses in the organization's policies and procedures; therefore it will take some time to address it properly. The goal is to rectify any management letter comments before the start of the next audit. The sooner you address it, the better off you will be when the audit begins.
- Conduct a Pre-Audit Planning Meeting
Before audit fieldwork is scheduled, it is a good idea to schedule an entrance meeting with management, board governance, and the auditors. The purpose of the meeting is to update the auditors with any significant changes in policies, staffing, or anything else that would affect the scope of the audit. Making auditors aware of any changes as soon as possible helps your audit run smoother.
- Organize Information and Data
Once the books are closed, it is time to start pulling together information for the auditor. Ideally, have a box or a binder ready that’s filled with account reconciliations and other types of audit support. With ever increasing technology, most auditors now have secured client portals which save paper and time. If any policy is updated during the year, add it to the portal, or if you sign a new lease during the year, add it to the portal.
For the more complicated audit areas, it would be beneficial to get template work papers directly from the auditor. This will prevent those audit adjustments from last year, and make the audit a little shorter as the auditor will start with the information in their preferred layout.
The most time-consuming part of an audit can be answering variance analysis questions. Again, even though auditors incorporate an element of surprise into audit procedures, they typically ask for the same source documents from year to year. Instead of waiting for requests to start asking questions, run through your internal financial statements and identify the line items that changed by 10% or more to get a jump on the questions. From there, you can start digging into the change and pull support before fieldwork even starts.
Plan a Post-Audit Debrief
- Book Adjusting Journal Entries and come up with the process to prevent issues in the Current Year
- Address management letter comments
Conduct a Pre-Audit Planning Meeting
- Planning meeting
- Scope of audit
Organize Information and Data
- Close books, complete reconciliations
- Gather audit documentation, highlight anything that changed
- Ask for templates
- Analysis, use 10% as a threshold
Throughout The Year
- Contact auditor with questions
- Provide updates if changes are significant
- Talk about new accounting pronouncements
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