Audit preparation works best when it starts well before fieldwork. Giving your accounting team and external auditor time to discuss significant transactions, reconcile accounts, and gather supporting documentation can help reduce delays and support a more efficient audit process.
Communicate Significant Developments
Internal and external changes may bring opportunities and risks that could affect your auditor’s procedures. Identify significant developments and discuss them with your auditor during the planning stage rather than waiting for fieldwork.
Examples of noteworthy internal events or transactions include:
- Major asset acquisitions or divestitures
- New or expanded product lines
- Business combinations, discontinued operations, or restructuring activities
- Relocation or a new lease for commercial space
- New or refinanced debt, covenant issues, or changes in financing arrangements
- Addition or retirement of owners and other key employees
- Losses and business interruptions from natural disasters, fraud, or cyberattacks
- Acquisition or loss of a key customer or supplier
- A change in accounting software
Your auditor will also want to hear about external changes, such as pending lawsuits and tax audits, new sources of competition, and new regulatory developments. Also communicate financial pressures, liquidity concerns, and events occurring after year end that could affect the financial statements or related disclosures. When in doubt, tell your auditor.
Address Accounting Issues Early
To the extent possible, all transactions for the year should be entered into your accounting system before fieldwork begins. But your accounting personnel might not know exactly how to report certain items. New contracts, leases, financing arrangements, acquisitions, and unusual transactions may require research or significant judgment under U.S. Generally Accepted Accounting Principles (GAAP) or another applicable financial reporting framework.
If your staff is uncertain how to account for a particular transaction or when a new rule goes into effect, ask for help before closing the books. Your auditor may be able to explain the applicable guidance and discuss possible approaches, subject to independence requirements.
However, management must make accounting decisions, oversee any assistance provided and accept responsibility for the financial statements. Resolving questions early can reduce audit inquiries and the need for adjusting journal entries during fieldwork.
Apply Lessons From Your Prior Audit
Start by looking at last year’s adjusting journal entries, control deficiency communications, and management letter comments. Confirm that you’ve incorporated recurring adjustments into your year-end closing procedures and implemented agreed-upon corrective actions. Also evaluate whether key controls are being performed consistently and whether supporting documentation, approvals, and other audit evidence are being retained and organized appropriately.
For example, if your controller previously forgot to record accrued payroll and vacation, double-check that you recorded the necessary accruals for the current year. Likewise, if your auditor recommended stronger internal controls over purchasing, evaluate whether your processes for ordering and receiving goods, approving invoices, modifying vendor information, and authorizing payments are appropriately separated or independently reviewed.
Don’t limit your review to items that resulted in an adjustment. Consider delays, documentation gaps, and difficult questions from the previous audit. Addressing those trouble spots before fieldwork can prevent the same issues from resurfacing.
Organize Records & Responsibilities
Financial statement balances should be supported by schedules or other documentation that reconcile to the general ledger and trial balance. Be prepared to substantiate significant judgments and estimates, such as allowances for credit losses, inventory obsolescence reserves, warranty obligations, impairment analyses, and measures of progress used to recognize revenue over time.
Ask your auditor for an updated prepared-by-client request list and clarify the expected format and due date for each item. You’ll likely create many requested schedules — such as accounts receivable aging reports and fixed asset listings — when you reconcile your general ledger. A secure electronic audit portal or well-organized audit file can help your team submit documents efficiently and track outstanding requests.
It also helps to designate an internal liaison to field the audit team’s inquiries. Often, this is the business’ CFO or controller, but it can be anyone knowledgeable about your business’ operations and accounting systems. Make sure other employees understand their roles, preserve requested records, and reserve time to answer questions. Prompt, complete responses can help keep fieldwork on schedule.
Reduce Disruptions & Avoid Surprises
A well-planned audit is typically more efficient, less disruptive, and easier to manage than one that relies on last-minute preparation. By addressing accounting questions early, organizing documentation and resolving potential issues before fieldwork begins, your team can spend less time responding to audit requests and more time running the business. Contact us to help coordinate the planning process and prepare for a smoother audit.
