25 Nov Are You Ready for Audit Season?
It is almost audit season for calendar-year entities. A little preparation can go a long way toward facilitating the external audit process, minimizing audit adjustments and surprises, lowering your audit fees in the future, and getting more value out of the audit process. Here are ways to plan ahead.
Before fieldwork begins, meet with your office team to explain the purpose and benefits of financial statement audits. Novice staff members may confuse financial audits with IRS audits, which can sometimes become contentious and stressful. Also designate a liaison in the accounting department who will answer inquiries and prepare document requests for auditors.
Enter all transactions into the accounting system before the auditors arrive, and prepare a schedule that reconciles each account balance. Be ready to discuss any estimates that underlie account balances, such as allowances for uncollectible accounts, warranty reserves, or percentage of completion.
Check the schedules to reveal discrepancies from what is expected based on the company’s budget or prior year’s balance. Also review last year’s adjusting journal entries to see if they will be needed again this year. An internal review is one of the most effective ways to minimize errors and adjusting journal entries during a financial statement audit.
Auditors are grateful when clients prepare work papers to reconcile account balances and transactions in advance. Auditors also will ask for original source documents to verify what is reported on the financial statements, such as bank statements, sales contracts, leases, and loan agreements.
Compile these documents before your audit team arrives. They also may inquire about changes to contractual agreements, regulatory or legal developments, additions to the chart of accounts, and major complex transactions that occurred in 2016.
Evaluate internal controls before your auditor arrives. Correct any ‘deficiencies’ or ‘weaknesses’ in internal control policies, such as a lack of segregation of duties, managerial review, or physical safeguards. Then, the auditor will have fewer recommendations to report when he or she delivers the financial statements.
Financial statement audits should be seen as a learning opportunity. Preparing for your auditor’s arrival not only facilitates the process and promotes timeliness but also engenders a sense of teamwork between your office staff and external accountants.