LUTZ BUSINESS INSIGHTS
7 Insightful tips for a successful audit preparation
JOE HARTMAN, AUDIT DIRECTOR
As you close your books for the year, you scramble to ensure the debits and credits are balanced, your financials are organized, and all missing invoices are accounted for. It’s crunch time, yet another audit season. But, it doesn’t have to be that way.
In our experience, we find that basic organization and adequate preparation go a long way to facilitate a successful audit process. It comes in handy to minimize audit surprises and adjustments. We have compiled our best tips below to guarantee you a smooth audit process.
1. Plan Ahead
Schedule a planning meeting or planning day with your auditor to discuss the audit process, what supporting documents will be needed and perform preliminary testing prior to audit fieldwork, where possible. Ensure the requested supporting documents are organized and waiting for the auditors when they arrive for fieldwork. Devoting additional time to plan and organize company financial statements and related supporting reconciliations ahead of year-end closing will help you prepare appropriately for an audit. Proper preparation enables you to be available during the audit fieldwork, eliminate anxiety, and reduce frustrations.
Treat the audit as a year-long process rather than a seasonal event to stay ahead of the curve. When you keep reconciliations and schedules up to date throughout the year, you can significantly reduce the auditing time and bustle at the end of the year to get things ready.
Appoint personnel within your company’s finance department to be the primary point of contact for independent auditors. Strive to continuously communicate with the independent auditors and discuss unusual or new transactions as they come up, rather than wait until the audit begins.
Prior planning allows you to create enough room for appropriate changes as well as evaluate alternatives in case of emergencies. You may also want to appoint a back-up contact person for the independent auditors if they cannot get the required information in good time.
2. Stay Up to Date on Accounting Standards.
Evolving accounting procedures, new pronouncements, as well as regulatory and legislative requirements, will significantly impact your organization’s financial reporting and audit process and outcome. Therefore, you may want to keep up with emerging trends and new accounting standards since it may turn out that you need to capture and manage data in a different way to implement the new standards, uphold new laws, etc.
You can also assess whether your company’s staff need any additional information or training in order to keep up with the new requirements. Regularly visit the Financial Accounting Standards Board (FASB), related websites, or reach out to your auditor for new accounting standard guidance to stay afloat on new accounting pronouncements and requirements that are effective for the year under audit.
3. Evaluate the Change in Activities
Carefully assess the changes in procedures, formalities, company relationships, and management standards and account for them prior to the audit. Be prepared to discuss the following questions.
- Did your company implement new policies/programs related to financial reporting?
- Have banking relationships changed?
- Are there new financial reporting requirements in your organization?
- Were there significant transactions, acquisitions or mergers that occurred during the year?
- Were there significant variations in company structure or internal controls related to financial reporting?
- Have there been changes to the leadership or the management team?
Such changes may warrant reporting and accounting considerations that cannot be overlooked in the auditing process.
4. Learn from the Past
Have a look at previous years’ audits, review past internal control recommendations, audit adjustments, and the challenges you might have experienced. Go through the documentation for such former struggles, including possible plans to address them in upcoming audits.
This will be an excellent starting point for review to ensure these challenges were addressed and avoid repeating. Evaluate also what went well during previous years’ audits and where there may be room for improvement.
5. Organize Data
Create a database of previous audit schedules that can be accessed and retrieved in the coming years by the relevant personnel. You can develop subfolders for important transaction categories such as payables, expenses, receivables, revenue, cash, investments, fixed assets, debts, agreements, etc. This will make it relatively easier to retrieve and manage this information.
Ensure information security is upheld for sensitive information like payroll. They can be either be protected by passwords or secured in a restricted network location. You can also explore the ability to write reports within your accounting software to automate the preparation of work papers and schedules.
6. Create a Timeline and Assign Responsibility
Review the list of schedules and work papers required for the audit and ask the auditor for a timeline of when each schedule or work paper is needed to ensure you have the necessary support and can provide it timely. Assign each item from the list to capable personnel and include a timeline for completion.
When planning for the audit, allow sufficient time to correct and review schedules if they arise. Prioritize the difficult, time-consuming, and complex areas first where possible. Schedules, work papers, preliminary financial statements, and other items necessary for the audit should be available before the fieldwork begins.
7. Be Available During Fieldwork
Ensure that all the key players are present or available during audit fieldwork. You can consider postponing or rescheduling non-critical meetings for accounting and finance staff, which may be the backbone of the audit.
Most of the work papers and schedules may be available to the auditors prior to audit fieldwork. Still, the auditors will be calling out for supporting documents, explanations, and additional information during fieldwork. Consider scheduling short audit status updates or collect an open-items list from the auditors at certain reasonable intervals to track progress.
How We Can Help
Could auditing be taking you or your personnel away from priority projects in your company? We understand that preparing for your year-end audit can often be stressful, but it doesn’t have to be that way.
At Lutz, we offer solutions to all your business needs, from accounting and consulting, financial, tech, talent, and mergers and acquisitions, among others. For questions or more information on successful auditing outcomes, feel free to contact us today.
ABOUT THE AUTHOR
JOE HARTMAN + AUDIT DIRECTOR
Joe Hartman is an Audit Director at Lutz with significant experience in providing accounting, auditing and consulting services to privately-held companies. He works with various industries including services, franchise, manufacturing, construction, printing, and distribution.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- BSBA in Accounting, University of Nebraska, Lincoln
- Youth Sports Coach
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