Filed under: Audit & Assurance, Federal Grant & Contract Consulting
It’s no secret that financial statement audits tend to raise the anxiety levels among the people involved. To reduce your stress when preparing for your next annual financial statement audit, try this two-phase approach:
- prepare for the audit each month – don’t wait until year-end,
- start early – as soon as the year ends, begin working on the prepared-by-client (PBC) listing.
Phase 1:
Remember that audit prep is a year-round exercise. Here are three activities to perform on a monthly basis:
Ask Questions Throughout the Year
Do not wait until onsite work begins. If an unusual event occurs, or you are thinking about entering into a new transaction, give your audit professionals a call. When you contact your auditor in advance, they can help you perform the correct accounting treatment the first time around instead of correcting it on the back-end. Your auditor can also enlist the assistance of other professionals, such as those knowledgeable in federal tax, state and local tax, IT, or accounting, to analyze the possible implications of new transactions from multiple angles.
Perform Reconciliations Monthly or Quarterly
Do not wait to perform them until year-end. Completing reconciliations on a more frequent basis allows you to identify, investigate, and resolve issues in a timely manner. If you wait until year-end, you may not have enough time to resolve the issue prior to the audit. You should also consider performing the investment rollforward process on a monthly basis. Some brokers only provide calendar year-end statements, or they have statements that may be difficult to interpret. By performing the rollforward on a monthly basis, you avoid the difficult calendar-year to fiscal-year conversion, and you often save time if your brokerage account statements are difficult to decipher.
Retain Documentation
This includes both documentation from third parties and of the considerations made when entering into a new transaction. Ensure donor documentation is obtained and retained for every contribution received. If an unusual transaction occurs, keep documentation of your decision-making process. Ensuring proper documentation is retained will reduce the time required to provide supporting documentation to the auditor and will avoid any unnecessary time spent searching for other support. Additionally, consider modifying your document retention and destruction policy for items that may have a long-term impact on the organization. This includes such items as the donation of a beneficial interest in a trust or a contribution to an endowment. These documents may need to be referenced in the future; therefore, they should be kept in perpetuity.
Tips for Federal Funding
If your organization also receives federal funding, here are four helpful processes to perform during the year:
Complete a Summary Sheet
Upon receiving a new federal award, review the award documents and complete a summary sheet with all the pertinent information. A summary sheet allows you to efficiently communicate the requirements to all applicable accounting and program staff and reduces the likelihood of non-compliance.
Track Revenues and Expenses
Use your accounting software to separately track all revenues and expenses of each award. Having the separate tracking improves the efficiency and accuracy of reporting by award for submission to federal agencies and for preparing the schedule of expenditures of federal awards.
Use Calendar Reminders
Use calendar reminders for accounting and program staff. Reminders will ensure timely preparation and report submission by both the accounting and program staff.
Provide Regular Staff Training
Provide regular time reporting and procurement policies training to all staff working on federal programs to avoid common single audit findings.
Phase 2:
Start early, don’t leave your audit preparations to the week or two before onsite work starts.
Schedule an Early Planning Meeting with Your Auditor
During your planning meeting remember to communicate current year events and unusual transactions. These may trigger additional research or procedures to be performed by your auditor. It’s possible these can be completed prior to onsite work; thereby saving time during the onsite portion of the audit.
Request to Receive the PBC List Before Your Organization’s Year-End
Once you have the PBC list, incorporate the necessary items into your annual close process to reduce duplication of work. While reviewing the PBC list, ask questions. If something on the PBC listing does not make sense to you, ask your auditor before preparing the item. You can provide valuable insight into what reports are available to aid the auditors in completing the audit. You may know a better way to test an account balance than the auditor had originally anticipated, which will save time for you and the auditor.
Send Population Listings to the Auditor
This should be done well in advance of onsite work. Once received, your auditors can send you selections in advance of onsite work. This gives your employees time to pull the supporting documentation before the auditors arrive. Then during onsite work, you can focus on responding to follow-up requests and questions that will arise.
Designate a “Quarterback” on Your Accounting Team
The quarterback is responsible for tracking what items have been requested, who is responsible, and when they are due. Have the quarterback check in with team members regularly to ensure they are on track to meet due dates. Once the items have been provided, have the quarterback review the documents to ensure they completely address the auditors request and tie to the general ledger. The quarterback’s involvement will help the organization meet deadlines and provide more accurate documentation, which will in turn reduce the back-and-forth with auditors during onsite work. Additionally, if tasks are falling behind, the quarterback can identify this early and communicate with the auditors to see what changes, if any, need to be made to the schedule.
Provide Your Auditor with the Trial Balance in Advance of Onsite Work
By providing the trial balance at least one week in advance, the auditor will have time to add the trial balance into the audit software. They will also be able to group any new accounts into the financial statement line item categories. This step reduces unnecessary delays when the team arrives on the first day of onsite work. And it allows the auditors to further analyze current year events and identify possible additional inquiries or procedures that will need to be performed during onsite work.
Give Yourself and Your Team Buffer Time in Your Internal Audit Prep Schedule
It is always a possibility there will be an issue discovered as part of your audit preparations that will need to be investigated and resolved prior to the audit occurring. If the issues can be resolved prior to the auditors being onsite, it will reduce the time they spend onsite working through multiple versions of documents, and it will give you more time to focus.
Once the audit starts, relax! If you implemented the suggested recommendations above, your audit will go smoothly. If you have any questions regarding your audit and how to best prepare, contact a Clark Nuber professional.
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