10 steps to ensure a successful audit
The annual external audit process can be a daunting time for many organizations. However, there are some key steps that can be taken to minimize the jitters and ensure a smooth and efficient audit:
Plan Ahead - Devote additional time both prior to and during the year end close to adequately prepare for the audit. To stay ahead of the curve, consider treating audit preparation as a year long process. Preparing monthly (or quarterly) schedules and reconciliations, reduces the the time it takes to prepare for the audit at year end. Maintaining an open line of communication with the independent auditors throughout the year , especially on new or unusual transactions, minimizes surprises and allows your organization to make appropriate plans or necessary changes.
Stay up-to-date on new Accounting Standards- You will need to keep abreast of new accounting pronouncements that may impact you organization, as this will directly impact the audit. You may need to track or manage data in a different way, in order to implement the new accounting standards or tax laws. Additionally, you will need to assess whether accounting personnel require additional training to implement the new requirements. The Financial Accounting Standards Board’s website(fasb.org) will provide all the details needed to implement a new accounting standard. The IRS website(irs.gov) will provide relevant details on implementing new tax laws.
Assess any changes in activities- Were there any significant changes in internal control systems or organizational structure? Were there any major software changes? In the case of nonprofit organizations, were there any new programs started or grants received? Such changes may trigger auditing , accounting and reporting changes, that needs to be communicated to the auditors during the planning process.
Learn from the past- Determine whether there were any prior year audit adjustments, internal control recommendations or other issues encountered during prior audits. Ensure that any similar matters in the current year are addressed prior to the commencement of the audit.
Develop timeline and assign responsibility- Review the list of workpapers and schedules requested by the auditors, making sure to obtain clarification of requested information when necessary. Assign each item from the list to a responsible person and include a due date. Tackle the most complex or time consuming requests first. The draft of the financial statements, schedules, work papers and other items requested by the auditor should be available on or before the first day of the audit fieldwork.
Be organized- Create a repository of audit schedules that can be accessed in future years by the appropriate personnel. Consider creating subfolders for significant transaction cycles or categories, such as cash, revenue and receivables, expenses and payables, investments , fixed assets , debt etc., to make it easier to manage and retrieve schedules. Schedules containing sensitive information such as payroll, may need to be password protected or maintained in an appropriately restricted network location.
Get clarification/ ask questions- If an audit request is unclear, ask for clarification prior to the start of the fieldwork to avoid potential delays and additional audit fees. Also, ask questions of relevant persons within the organization to obtain information necessary to prepare required financial statement disclosure notes. For eg. significant accounting estimates, pending litigation, related party transactions, commitments and contingencies.
Perform a self- review- Once all journal entries have been made, review schedules to ensure amounts agree or reconcile to the trial balance. Review the financial statements for overall reasonableness. Refer to a disclosure checklist to ensure all required disclosure notes have been included. Ensure that you have reasonable explanations for material variances from prior year and the current year budget numbers.
Be available during fieldwork- Avoid key personnel scheduling time off during the audit. Also, consider rescheduling or postponing non-critical meetings for accounting and finance staff heavily involved with the audit. Schedule brief status meetings , or obtain an open items listing from the auditors at regular, logical intervals during the engagement to track progress.
Finish strong- Maintain communication with the auditors during the time between fieldwork and issuance of the audit report. Schedule an exit meeting with the auditors to address any issues or open items that could delay issuance of the audit report. If there are open items at the end of the fieldwork, establish a timeline for addressing these timely.