Efficient Audit Preparations: Key Steps for Success
Written by Jill Swinger
Financial audits are a critical part of many companies’ annual processes, often required by banks, donors, lenders, vendors, customers, investors, or potential acquirers. While a CPA firm may quote a standard price for an audit, the actual cost can rise significantly if the company isn’t well-prepared. Inefficiencies can lead to out-of-scope work, making the process take longer and cost more. To avoid these pitfalls and ensure a smooth audit, focus on the following six strategies.
1) Establish Consistent Processes
Implement processes to ensure accuracy, consistency, and easy access by:
- Maintaining a checklist: Create a detailed checklist of tasks to be performed with target dates.
- Categorizing transactions: Ensure all accounting transactions are appropriately categorized.
- Keeping detailed records: Maintain thorough and organized records to reduce the time spent searching for documentation.
2) Address Prior Year Audit Adjustments
Reviewing audit adjustments from the previous years will provide valuable insights and allow you to:
- Identify gaps in data: Highlight areas where accounting was incorrect or incomplete.
- Implement best practices: Incorporate the CPA’s recommended adjustments into ongoing processes to avoid repeat errors.
3) Conduct Internal Reviews
Before fieldwork begins, conduct a thorough internal review to identify and correct potential issues. Incorporate these best practices:
- Identify and fix discrepancies: Address any discrepancies found internally to save the CPA’s time and reduce potential audit adjustments.
- Collaborate on adjustments: Ensure mutual agreement with the CPA on any changes to prevent unnecessary back-and-forth.
- Back up journal entries: Maintain adequate backup for all journal entries. Attach support electronically to the accounting software or organize it in a separate binder for easy review.
- Conduct monthly reconciliations: Review all balance sheet accounts monthly and make necessary adjustments during the year to reduce time at the year-end close.
4) Prepare for Document Requests
The CPA firm will request various documents before their onsite fieldwork. Be ready to provide both financial and non-financial documents, such as:
- Trial balance
- Bank statements
- Payroll reports
- Aging reports for Accounts Receivable and Payable, along with subsequent payment information
- Board meeting minutes
- Donor information (if applicable)
- Legal and Regulatory documentation
- Changes in company bylaws
- Changes in company accounting policy, such as procedures around electronic payments
Having these items readily accessible and accurate ensures a faster review process.
5) Maintain Ongoing Communication
Effective communication with the CPA firm helps prevent misunderstandings and delays. Foster an ongoing dialogue with:
- Check-ins: During the audit preparation period (4–6 weeks before fieldwork), schedule one to two calls to discuss progress and clarify outstanding requests.
- Proactive follow-ups: Confirm that each request has been met and address any outanding issues.
- Sharing the timeline: Ensure the audit team is aware of the timing for draft completion, which may depend on banking requirements, grant deadlines, or Board of Directors meeting schedules.
- Scheduling a final meeting: Schedule a closing meeting on the last day of fieldwork to address outstanding questions, confirm the next steps, and identify any required documents.
6) Control Fiscal Year Transactions
Once accounting records for the fiscal year are submitted, be sure to:
- Freeze prior year transactions: Avoid making changes to the fiscal year under audit unless the CPA firm is informed and approves.
- Coordinate adjustments: Work with the CPA firm to decide when and how to implement any necessary adjustments.
Bottom Line
Efficient audits require preparation, organization, and clear communication. By tightening your processes and proactively addressing potential issues, you can save time, reduce costs, minimize audit adjustments, and foster a smoother relationship with your CPA firm.
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Jill Swinger is a Finance & Accounting Director and is primarily engaged by organizations requiring financial management analysis. Jill offers a well-rounded business background and brings more than 30 years of experience in both public accounting and private industry finance. She works on an ongoing, part-time, fractional basis to provide a cost-effective way to supplement your finance function and build for the future. To learn more, contact Kyle Ficker at kficker@warrenwhitney.com or 804.282.9566.
Making Potential Happen.
Data Directions Inc.