Is audit preparation the task on your to-do list that seems daunting and stays on your list from week to week? Preparing for your annual financial statement audit can seem overwhelming, but these tips can help you reduce stress, tackle the preparation in less time, and then cross it off your list.
- Prepare Throughout the Year
Audit preparation should be a year-long process. Preparing throughout the year can eliminate some of the hustle and bustle of year-end and give you time to address issues as they arise. It’s recommended that accounts are reconciled monthly. Create spreadsheets for PBC (provided by client) balance sheet items such as prepaid expenses and pledges receivable. Update and reconcile the spreadsheets to the general ledger monthly. We also recommend setting up an Audit Prep file folder to use for accumulated information on material transactions and communications throughout the year. This cuts down on the searching at year-end.
- Communicate With Your Auditors
If unusual transactions occur during the year or if you have questions on how to account for a transaction, don’t hesitate to contact your auditor. They will appreciate you reaching out and would rather answer your questions now than during the busy audit season. Communicating early allows time to properly account for any transactions in question.
- Obtain the PBC List
Ask your auditors for a PBC list, or access to the portal where they keep prior-year information. If you’re beginning your preparation early, you can use the list provided for the prior audit to get started. You also can contact your auditor and ask that they provide you any updates to the list. You can use the PBC list to create your project plan for audit preparation, where you assign tasks and provide deadlines for the preparation of the schedules and workpapers with time allowed for a supervisory review of the prepared document. Monitoring the deadlines throughout the year helps confirm that you’re staying on track for a stress-free year-end.
- Perform Periodic Close Processes
The success of audit preparation depends highly on the quality of the periodic close processes. Most organizations perform a monthly “soft close,” including all balance sheet reconciliations and evaluations of revenue and expense. We recommend adding in a “hard close” at least quarterly, which would include expense allocations, releases of net assets, and searches for unrecorded receivables and payables. The better your periodic close processes are, the less research on account balances and the fewer adjustments are needed at year-end.
- Stay Organized
Maintain your audit preparation schedules in an orderly manner. A shared audit folder for each audit year with subfolders for each audit category will make it easy for accounting personnel to access prior schedules and create current-year schedules. Numbering your schedules to correlate with the numbered requests on the PBC list can improve your efficiencies even more.
- Maintain Documentation
It’s not a question of if the auditors will request documents, but of what documents they will select to test. Maintain all invoices for disbursements made throughout the year in a central location. Documentation for all donations and grants received should be maintained whether they are received with restrictions or without. It’s important to keep all your documents easily accessible to help make the audit process more efficient.
- Stay Current on New Accounting Standards
It seems like every year there is a new pronouncement, accounting standard, or regulatory requirement that can affect your organization’s financial statements. Learning of these changes before the audit begins can help your organization implement and comply with the new standard. Check with your audit firm, industry accounting organizations, and local CPA societies to sign up for alerts and newsletters that can help you stay on top of upcoming pronouncements. FORVIS provides FORsights™ for a variety of industries that can help subscribers stay current as well.
Implementing these seven tips can help your audit run smoothly and provide a better pace for your employees at year-end. If you have any questions or need assistance with preparing for your audit or implementing new standards, reach out to a professional at FORVIS or submit the Contact Us form below.