Preparing for an audit can seem daunting, but with the right steps, you can ensure a smooth and efficient process. Here’s a step-by-step guide to help you prepare effectively for your upcoming audit.
1. Start Early
Engagement Letter: Begin by securing an engagement letter to confirm the audit’s scope and terms.
Pre-Audit Preparations: Gather essential documents, including board minutes, debt agreements, leases, fixed asset additions, and any changes in corporate structure before the year-end.
Post-Year-End Documentation: After the year-end, promptly provide bank, debt, and investment statements.
Trial Balance and Reconciliations: Submit your trial balance, reconciliations, and other reports at least two weeks before the fieldwork starts. Early confirmation information ensures auditors have ample time for responses.
Inventory Observation: If applicable, perform inventory observations prior to the audit.
Planning Meeting: Allocate time for a planning discussion to streamline the audit process.
2. Review Issues from Prior Audits
Address any issues identified in previous audits. For example, ensure your cutoff procedures are accurate and that internal control issues have been resolved. Organize time-consuming documents ahead of time and provide auditors with digital copies, preferably in Excel format.
3. Organize Financial Records
Digital Records: Prioritize digital recordkeeping for efficiency.
Suralink System: Utilize systems like Suralink to streamline the process.
Reconciliations: Ensure year-end reconciliations align with the trial balance. Detailed accounts, such as outstanding checks, should include specific information like check dates, numbers, and amounts. Clear records save auditors time and reduce client costs.
Revenue Recognition: Verify adherence to revenue recognition rules.
4. Organize Operational Records
Prepare internal control documents, the employee handbook, accounting policies and procedures, and corporate structure documents for auditor review.
5. Organize Staff
Assign appropriate staff to handle audit inquiries. Depending on your company size, appoint a lead for all audit questions or designate leads for specific areas like Accounts Payable (AP), Inventory, and Accounts Receivable (AR). Ensure all staff involved have access to the Prepared by Client (PBC) list.
6. Clarify Unusual Transactions
Address any unusual transactions before the audit begins, such as mergers, acquisitions, or corporate restructurings. If there’s any concern of fraud, communicate it openly with your auditor. Be prepared to discuss lawsuits and equity transactions.
7. Conduct a Self-Review
Have a different team member review reports and reconciliations to ensure they match the trial balance and are accurate. Avoid presenting a new trial balance to the auditor at all costs.
8. Understand Audit Requirements
Familiarize yourself with Generally Accepted Accounting Principles (GAAP) reporting requirements to eliminate surprises. Be prepared for any supplemental information and compliance audits.
9. Communicate with Auditors
Decide on a fieldwork date and ensure staff and space availability. Discuss deadline requirements and set an audit timeline from the start. Communicate loan covenants, grant requirements, and board meeting presentation dates. Remember, a representation letter is required before final reports can be sent.
10. Address Subsequent Events
Inform auditors about any events occurring after the year-end that could impact the audit.
By following these steps, you can ensure a streamlined and efficient audit process. Early preparation and organization are key to minimizing stress and facilitating a successful audit experience.
Laura Hartley, CPA
Laura Hartley, CPA is a Partner at DMJPS CPAs + Advisors in Assurance Services. She is an experienced assurance and accounting professional with fifteen years of public accounting experience. Laura has a pivotal role, actively engaging in a multitude of audits, reviews, and other attestation engagements for the firm. She is entrusted with the critical responsibilities of planning and supervising engagements for various businesses, organizations, and non-profits, including compliance-related audits, reflecting her experience in the field.