By Emily Campbell
Staff, Audit & Assurance Services
[email protected]
When you hear the word “audit,” do the words “stress” or “dread” immediately come to mind?
At Sponsel CPA Group, we want your audit to be a positive, hassle-free experience with us. Consider the audit process as an investment in your organization’s future by way of fine-tuning processes that allow for adequate oversight and preparation of financial statements.
To ensure you have the best experience possible with your audit, here are six steps to help the process go smoothly:
- Communicate with your audit team
The first thing you can do to reduce the stress of an audit is establish a timeline with your audit team. Set fieldwork dates and deadlines for compiling all requested items. Make sure any required financial statement deadlines are communicated. This will ensure everyone is on the same page and allow both you and the audit team to plan accordingly.
It is also important to communicate significant changes from prior years, such as changes in business operations, changes in accounting methodology or other major transactions (refinancing debt, new lease agreements, adopting a new accounting pronouncement, etc.) with your audit team, so that they can appropriately plan for the audit. In addition, be prepared to discuss variances in budget to actual, variances between current and prior year, and other changes – such as restructured management, ownership, new business operations, or a change in accounting personnel.
- Reconcile your accounts
It is crucial to reconcile all balance sheet accounts at year-end. Maintain supporting schedules for the final balances, especially for major accounts such as cash, accounts receivable, inventory, accounts payable and accrued expenses. Make sure you are able to support any management estimates used in financial reporting (e.g., allowance for doubtful accounts, inventory allowance, depreciation, functional expense allocation, etc.). We recommend having different levels of review to identify any errors, discrepancies, or variances from expectations. Review the prior year adjusting journal entry report to determine whether or not similar adjustments should be made in the current year.
- Update your Property, Plant and Equipment (PP&E) schedules
Review your current PP&E schedules to determine whether all assets listed are still in use and if there have been any additions or disposals the past year. Compile a list of assets purchased or sold during the year, including dates, amounts and detailed description of the assets to provide to the auditors. Also, review repair and maintenance detail to verify all assets were appropriately capitalized.
- Assemble an audit folder
To manage the volume of information we request, it may be helpful to compile items in one folder throughout the year for the audit team. These items could include new lease agreements, line of credit renewals, correspondence with regulators and lawsuit correspondence. The year-end request information can be saved with those documents already set aside during the year.
- Evaluate internal controls
Review your internal control procedures as well as the prior year management letter, and correct any deficiencies. Some areas to focus on include segregation of duties, managerial review or physical safeguards. Document the controls that are in place. Following these steps can improve the company’s internal structure and will give us a good understanding of procedures in place.
- Review recent accounting rule changes
Read over the new accounting rule modifications and standards and evaluate if they are applicable to your entity. See our recent article, New Accounting Standards Your Organization Needs to Know, for a brief description of key changes.
If you need help preparing for your audit, please contact Emily Campbell at (317) 613-7873 or email [email protected].