An audit doesn’t have be something to dread. In fact, this annual compliance ritual can yield important financial insights and opportunities for improvement – if the organization invests the time to prepare early and thoroughly. Whether you recently completed an audit or it is coming up soon, here are some audit preparation tips and best practices to make the process smoother and less stressful for everyone involved.
Audit preparation tip #1: Stay on top of reconciliations
Reconciliations are widely considered the most important step of audit preparation. All of the major accounts included in your financial statements should be closed out before the end of the year. Some common incomplete or inaccurate reconciliations include cash and debt, investments, accounts receivable and payable, fixed assets and depreciation, and prepaid assets and deferred liabilities. Be sure that you have the supporting reconciling items for each reconciliation, such as lists of invoices or outstanding checks. In addition, have a controller or CFO review the reconciliations prepared by your accounting staff.
Audit preparation tip #2: Have everything prepared for the auditors
Your auditor should have given you a list with all of the items they need for the audit. Getting these items to your auditor prior to the start of your financial audit makes it likely they’ll be able to perform the audit quicker and with fewer questions. Be sure to prepare the management and IT team members as well. Management will likely need to answer questions that go beyond the balance sheet, and IT professionals may be able to help streamline the audit process through the use of technology.
Audit preparation tip #3: Proactively explain business changes
It saves all parties time to inform your auditor of any major business changes that occurred in the last year before they have to ask themselves. Did you have an increase in expenses? Purchase a new business? Sign a new lease? Switch accounting software? All of these changes should be shared upfront with your auditors so they can be sure the correct accounting treatment is applied. Keep track of these changes as they happen throughout the year to be prepared.
While it is true that auditors review the past, business leaders should not discount their ability to provide insights and perspectives into many aspects of the enterprise and help shape a stronger future.
Audit preparation tip #4: Overshare business information
You may think the only information your auditor needs is your general ledger. After all, an audit is an annual compliance requirement. In today’s complex business environment, however, auditors and their clients should both think more broadly. It now takes more than a ledger to determine an organization’s financial stability and overall sustainability. Be open with your auditor and share with them more information than you think is relevant. While you may not think it’s necessary for the financial audit, information such as workers’ compensation reserves, insured estimated liabilities, debt swaps and management agreements can all impact business risk and performance.
Audit preparation tip #5: Communicate throughout the year
In terms of an audit, there is no such thing as overcommunication. Communicate with your auditor before the audit, during the audit process and throughout the whole year. An auditor serves multiple purposes. While they assess compliance, they can also act as an advisor, providing valuable insights on business strategy and planning. Keeping your auditors in the loop on your priorities and initiatives allows them to offer you any support or resources. This will help you handle accounting difficulties as they arise, rather than waiting.
Starting the process of gathering important information and taking note of any big changes now will pay off in the future. RKL’s assurance advisors can help your organization prepare for your next audit by working with your team to implement these tips. Start the conversation with your RKL advisor or use the form below to reach out.