4 Steps to Help Prepare for a Financial Statement Audit

The annual audit is a process that when effectively coordinated between the audit firm and the organization (auditee), can be timely, provide considerable value to the auditee, and minimize organizational staff time and resources. Here are four major points to consider as you plan for your next audit:

1. Be Proactive

• One of the most helpful things for both the auditor and the auditee is to be in communication throughout the year as it relates to items such as significant changes in operations, new loans, new bank accounts, or other items that will impact financial reporting, etc. This will allow the auditor to provide timely input on the new matter to the entity and also will alert the auditor to include the new matter in its planning for the next audit.
• Obtain and review the audit engagement letter several months prior to year-end. Have a dialogue with the auditor if you have any questions or concerns on the content.
• If you had internal control deficiencies and management recommendations that were communicated in conjunction with the prior year audit, make sure they have been addressed during the year under audit. Discuss with your auditor what you have done or will do to address each matter. Better yet, have a written response to each matter, review with your board, and then provide to your auditor.
• Coordinate with the auditors when there is a new accounting standard that will be adopted in the current audit year and what you will need to do to prepare for it.
• Develop an internal schedule related to your audit preparation and communicate it to all parties on your team so they are in the loop.
• Agree to a defined schedule with the auditors which gives sufficient time to meet any internal or external deadlines.
• Communicate with the auditors and get a complete list of items they will need from your team and have an agreed upon date for which those items will be provided.
• If possible, provide the auditor read-only access to the accounting system. This can help reduce unnecessary requests and back and forth.

2. Be Prepared

• Assign a person to each item requested by the auditor, along with a deadline internally for those items to be ready for overall review by the CFO/Controller/assigned financial staff.
• Close fiscal year end within a reasonable period of time after year end.
• Review all accounting policies and procedures.
• Review all of your own financial information and understand year-to-year variances. Prepare explanations and have documentation available for these variances.
• Collect and have available to the audit team all new agreements entered into during the year under audit.
• Gather and compile information on related party transactions. Auditors will look at these.

3. Stick to the Schedule

• Continually monitor your internal status against the agreed upon schedule.
• If beneficial, hold status meetings with the auditor on a regular basis to keep both parties informed and accountable. This is especially helpful if fieldwork is virtual.
• If you know you are not going to be able to meet the deadlines that you have agreed to with the auditors get in front of it as soon as possible. Be realistic. Too often the auditors hear that all is on track until just days before the audit is scheduled. Firms are imposing a rescheduling fee on their clients for delays as rescheduling audits is challenging for firms for numerous reasons including inefficiencies in redeploying staff at the last minute to other assignments and rescheduling the audit when in the short-term staff schedules are already filled. If you have to have a delay or potential for a delay in the audit, the sooner you tell your auditors the better it will be for all parties to reschedule.
• Throughout the process make sure you know the expectations, including timing, what to prepare, who is involved and why. Don’t allow yourself to be caught off guard. You would hate to miss a deadline because of something that should have been known.

4. Completion and Follow up

• Compare draft audited financial statements to internal financial statements.
• Review, approve, and record entries provided by auditors.
• Review any reclassifying journal entries.
• Have a predetermined plan for review of draft financial statements and audit communications before they go final. Schedule audit/finance committee meetings well in advance.
• Hold a post audit meeting with auditors to discuss the audit and cover things that went well and those things that can be improved upon.
• Keep a file with all items provided to the auditors in the current year for reference for the next audit.

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