Chances are if you’re clicking on this post your first time audit is on the horizon. Perhaps you’re expanding your business and taking out a new line of credit to finance that growth. Maybe you’re entering a business area with a regulatory environment that requires an audit, or you’re taking on new investors or getting ready to sell your business and you’re looking for the confidence and assurance that audited financial statements can provide. Whatever the reason, an audit is in your future. With some planning and up-front work your audit experience can be a good one and you may even gain some efficiency and improve your processes. Below is a list of best practices to help make the audit run seamlessly.
Talk to Your People
One key factor to ensure a successful audit is preparing your employees and setting the right tone. The word “audit” can cause worry and concern if your employees don’t understand the context and reasons behind the audit. When the auditors visit your offices they will talk to employees at every level in your company and it’s important to make sure they are comfortable. Empower your employees to answer questions, or defer to you or others in your organization, when it’s appropriate. Assign roles and point people for the various audit areas. Communicate this internally and also to the auditors and they will know the right person to go to when questions arise. Stress the importance of being open and honest with the auditors. Establishing an environment that treats the auditors as partners will help ensure they are as effective as possible.
Document Your Internal Processes and Controls
If you don’t already have detailed process and control documents, draft them ahead of the audit. Auditors are required to document their understanding of your internal control environment and no one knows your internal control environment better than you and your employees. By documenting your processes and controls you can ensure the auditors hit the ground running and understand all the strengths of your controls.
At a minimum consider compiling the following process and control documents:
- Cash in-flows
- Cash out-flows
- Controls over financial reporting and month/year-end close
- Information technology general controls
Consider if you have any internal documents (job descriptions, training manuals etc.) that you can leverage to turn into the process and control documents.
Check Your Records and Fix Any Gaps
The auditors will be requesting a significant number of documents supporting transactions and business activities. Making sure you have a complete set of records up front will save you the headache of having to recreate them during the audit process.
- Ensure you have support for transactions (invoices, purchase orders, cash payments/receipts).
- Gather all contracts, lease agreements and organizational documents.
- Review your notes and records and make sure you’ve documented any unusual items or transactions, especially large ones.
- Reconcile your books and check that your subsidiary ledgers agree to your general ledger.
- When you’re providing schedules to the auditors make sure they agree to the general ledger. You don’t want the auditors spending their time (or your money) reconciling reports that you can reconcile more easily.
- Ask questions, often and early. The auditors want to provide you with a great audit experience and you can help ensure they do just that by starting a dialogue early and getting to know the whole audit team. Even though the shareholder and manager will ultimately be responsible for the audit, it’s the audit staff and seniors that you will be working with on a daily basis.
- Set an expectation for any communication preferences you and your employees may have. If you prefer to have a record of everything to refer back to, let the auditors know you like e-mails. Alternatively, if you like face-to-face meetings to address questions, let them know that too.
- Request the client request list ahead of time and make sure you understand what’s being requested. If there’s an unusual transaction or complex accounting issue, the auditors want to be your resource and are always happy to help you work through the details.
- Consider asking to receive sample selections in advance of fieldwork. That way you can pull all the document requests before the auditors arrive to ensure they can maximize their time in your offices. You will have to provide populations sooner, but the payoff will be huge in terms of efficiency.
- Staying ahead of the auditors will make sure they’re able to stay on track with your timelines and ensure you the best audit experience.
There’s no way around the fact that a first time audit is a lot of work. But by following the tips provided above, and taking time upfront to make sure you understand the audit process and getting your records and employees ready, you can ensure the process is efficient and valuable.
Author: Megan Whalen, Audit Senior Manager
This blog post is a summary and is not intended as tax or legal advice. You should consult with your tax advisor to obtain specific advice with respect to your fact pattern.