Many businesses are required to undergo an annual financial audit, whether they be corporations, not-for-profits or governmental entities. The process can be stressful for those under the microscope and also for those footing the bill, but there are steps that you can take that can help reduce the pain, speed up the process and create a valuable learning experience for all those involved.
Dust off the Prior Year Audit Report
This report is full of extremely valuable information, especially in the sections for note disclosures and findings. If your auditors wrote a note about it last year, it is guaranteed to be revisited in the current year. Be prepared to discuss any and all notes and findings with the auditors and their relevance to your current year operations. Gather current documentation pertaining to each item, as the auditor will surely ask for it.
Close Your Books
In order to properly close your books, you’ll need to verify your beginning balances against the prior year audit report. Run a balance sheet from your accounting records as of the date of the last audited financial statements and compare each balance to your audit report. If there are differences, you’ll need to investigate. Be prepared to report to the auditors what those differences are and your reasoning for adjusting prior period balances.
Reconcile your bank, credit card and financing accounts as of the end of the year. For bank accounts, make sure that you investigate uncleared checks that are more than a few months old and correct any errors. Credit cards should never have any uncleared activity, other than a few days at the end of the month when there is sometimes a day or two lag between the purchasing date and the posting date. Also, remember that the credit card closing date rarely coincides with your end of year reporting date, so make sure that you are booking purchases through the end of the year.
Review your accounts for proper accruals. Make sure that any bills that were for goods and services received in the period are included in accounts payable and that any services or goods you provided during the period are included in your accounts receivable. Don’t forget to consider payroll and vacation accruals, too.
Respond to Inquiries in a Timely Manner
Your auditors are likely juggling several engagements at once. A slow response from you often means that they are moving on to other projects, slowing down the time-line of your report. The more responsive you are, the faster the entire process will be.
Treat the Financial Audit as a Learning Experience
Keep in mind, your auditors have seen it all – the good, the bad and the ugly! Nothing that they uncover or that you provide will shock them, so take advantage of their expertise. Ask questions and take notes. Ultimately, they want to help you optimize your organization.