Preparing your business for its annual audit does not have to be a daunting task. In fact, you may find that you enjoy the process of working with an expert to improve the look, feel, and usability of your financial reports. Whether you’re a seasoned pro or if you’re getting ready for your very first audit, there are a few simple steps you can take to ensure your year-end audit goes smoothly.
Although audits occur soon after year-end, there are a few things you can do throughout the year to make the process more efficient.
Perform Regular Account Maintenance
It may take a few tries to dial in the necessary routines, but if you can improve some part of the account maintenance process each year, your audits will only get easier. Some regular maintenance items are:
- Making journal entries timely
- Reconciling data monthly
- Monitoring unpaid invoices
- Following up on uncashed checks
- Performing regular inventory counts
- Adjusting asset lists timely
Monitor Changes to Reporting Requirements
Reporting requirements change more often than you might think. In the last five years, accounting guidance has overhauled how you are to report revenues, leases, and grants, just to list a few. Significant changes to accounting guidelines don’t happen every year, but even smaller modifications will impact your reports. Your CPA can help you interpret these changes, but it is your duty to understand them and implement them internally.
Use the Right Software
The software you use can eliminate stress just as easily as it can generate it. In other words, your accounting systems matter. If your accounting system is clunky or confusing, talk to your CPA. They can recommend training programs to help you understand the tools at your disposal, or they may suggest a different product that would better suit your business.
Establish Internal Controls
Your auditor may not be required to assess the validity of your internal controls as part of the audit, but they will certainly ask about them to gain a better understanding of your control environment. With good controls, your financials are much more likely to be free from errors and misstatements, which will make the audit process go that much more smoothly.
6 Months to 1 Year Out
When you are six months to a year out from your year-end audit, you should:
Select Your Auditor
The sooner you can engage an audit team, the better. The proposal process itself can take up to a month, and once you’ve engaged with a CPA firm, they will need time to determine scope, schedule staff members, and establish a timeline for the audit work itself.
Talk to Your Auditors about Expectations
By following your auditor’s recommendations in the months and weeks leading up to the audit, you can reduce the amount of time they need to be on site, allowing your business operations to return to normal that much sooner.
Prepare for Interim Field Work
Although not always necessary, your auditor may choose to perform field work before the year ends. Interim testing and planning can lighten the workload at year end for both you and your auditor.
Get Your Team Members on Board
Get all your team members – especially members of management – on board with the process. The audit has value outside of a reporting requirement, and if members of management can see that value, their support will expedite the process.
Make Note of Major Changes
If your business experiences a significant change, like a change in management, establishment of a new business line, an impending merger or acquisition, or anything else of note, your auditors will want to know about it. These changes may affect the scope of the audit, and they may need to adjust their plans and expectations.
1 Month Out
Just before the audit is scheduled to commence, there are a few easy things you can do to prepare for the big day.
A month before the audit, your auditor will send you a list of documents to collect. Internally, auditors coin these documents “PBCs” – prepared (or provided) by client. PBC documents can include many things, but common data requests are:
- Account reconciliations
- Bank statements
- Credit card statements
- Sales invoices
- Sub ledger detail listings
- Activity rollforwards
- Account fluctuation analytics
- Accounting manuals
- Financial policies and procedures
- Accounting system and IT system processes
Free Up Schedules
The week of the audit, a few key members of your team will need to be available to answer auditor questions, pull samples, and walk the auditors through business processes. Free up those team members’ schedules so they don’t have to juggle their existing workload with the requirements of the audit.
Assign Ownership over Audit Processes
Assign members of your staff to certain sections of the audit. For example, it may make sense for one of your accountants to pull all information about inventory and assets, while another can help with revenues and expenses. This helps the auditors know who to turn to when they have questions, and the burdens of helping the auditors can be spread amongst the employees you trust most.
After the Audit
Once they leave your office, your auditors’ work is not yet done. As they finalize their reports, they may have follow-up questions or need clarification about information they collected. Be ready to answer those questions. You may also benefit if you perform the following tasks:
Correct Internal Control Deficiencies
During the assessment period, your auditor may notice deficiencies in your controls. They may not be required to report on those inconsistencies, but most auditors will mention them to you. If any are identified, you can shore up those deficiencies over the year that follows to strengthen your system of internal controls and your control environment. Addressing these deficiencies will ensure your systems and processes are performing optimally, which will reduce the likelihood of errors and misstatements on future financial reports.
Ask yourself how the audit went. What part of the process gave you a headache, and what went smoothly? This could be a self-imposed analysis, or you could reach out to your auditors for an evaluation of your team’s performance. Getting feedback from them will improve rapport, and improving the audit process may even produce cost-savings over time.
Business owners have a lot on their shoulders. They are responsible for the operations and success of the business, and they are also tasked with ensuring the business’s records are accurate and complete. Commissioning annual audits – whether they are required or not – can help a leader assess the quality of their financial information. If you want to discuss the possibility of an audit with one of our team members, please reach out to us today.