10 Tips to Prepare for Your Next Audit
It’s 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 10 tips to help you 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.
- 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 your 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’s expected based on the company’s budget or prior year’s balance.
- Review last year’s adjusting journal entries to see if they’ll 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.
- Prepare work papers to reconcile account balances and transactions in advance. Auditors will ask for original source documents to verify what’s reported on the financial statements, such as bank statements, sales contracts, leases and loan agreements.
- Compile these documents before your audit team arrives. They may also 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, your 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.
Contact Moore Stephens Doeren Mayhew with any questions or if you'd like a review of your financial statement audit process.
Anne Taros, CPA
Anne Taros assists a variety of clients with business and tax-related issues domestically and abroad. She works with small and mid-sized clients in the manufacturing, service, retail and wholesale industries, offering business advisory services, general ledger management, and tax planning and compliance. Contact Anne at email@example.com or (248) 244-3160.