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Preparing for an Audit: 2024 Edition

An organization is in the middle of an audit only to find out they overlooked a significant transaction that occurred during the year. A significant adjustment is being proposed by the auditors because an organization did not have sufficient evidence to recognize a transaction correctly. These examples of common mistakes can prove to be costly in terms of time and money. Luckily, there are general guidelines that can be followed to mitigate the risks of these mistakes happening. With June 30 fast approaching, organizations might also find the following guidelines timely:

1. Hold a Planning Meeting

It is highly recommended to hold a planning meeting with the auditors well in advance of the year coming to close. This meeting should include an update on business operations, any new agreements entered into or modifications to existing agreements (financing, leasing, grant, etc.), any updates or changes to existing internal control procedures, and new accounting pronouncements that could affect the organization.

This meeting should also include a discussion on the timing of various audit-related procedures, such as inventory counts, fieldwork dates, draft financial statements, and presentations to those charged with governance. Based on the results of the aforementioned topics, the amount of time dedicated to the completion of the audit procedures and, ultimately, the issuance of financial statements could be significantly affected.

2. Reconciliations

Now that the timing of the audit has been established, a plan should be put in place to ensure all key account balances and significant transactions are reconciled and tied to their respective subledgers or other supporting documentation. This is where a tool, such as a closing checklist, could be beneficial to ensure roles and responsibilities have been established (i.e. who is preparing the reconciliation, who is reviewing information, and when it should be completed) and no-account balances or significant transactions have been overlooked.

3. Get Organized

The next item to consider is taking the time leading up to fieldwork to get organized. Make sure all invoices have been compiled in an organized fashion (by vendor, by general ledger account, by month, or all of the above), fully executed agreements have been gathered, monthly statements have been assembled, and any other communication that would support recognition in the general ledger has been accumulated. Auditors will request such information as part of their audit. This will be communicated ahead of time, but it will save time and effort tracking down these items if they have been gathered beforehand.

4. Be Available

Ensure personnel that play a key role in the recording, authorizing, reconciling, and/or reporting of transactions are available at the time of the agreed-upon fieldwork dates. Auditors will most likely have follow-up questions or requests, so it will be important these individuals are available to prevent any delays.

5. Communicate

Hold regular updates with the internal accounting/operations team, as well as the auditors. Organizations should be realistic about the status of requests, open items, and any adjustments to the timeline. Having frequent and comprehensive communication throughout the audit process, through report issuance, is essential for all parties to stay on track.

In addition to these guidelines, organizations should remain cognizant of previously issued accounting pronouncements and their continued effects to avoid any unwanted audit entries. One in particular became effective on July 1, 2022, for most organizations, which is FASB ASC Topic 842, Leases. As a reminder, organizations should continue to amortize their right-of-use assets and lease obligations throughout the year, as well as evaluating any new lease agreements entered into during the year for proper classification and valuation. A recorded webinar can be found here to serve as a refresher.

Effective for fiscal years ending June 30, 2024, is FASB ASU 2016-13, Financial Instruments – Credit Losses (ASC Topic 326), commonly referred to as “CECL” for short. Organizations should be prepared to provide their auditors with evidence of the strategies used for estimating expected losses. For further guidance, organizations can refer to a recent article discussing how CECL will impact nonprofit organizations here.

Lastly, as a reminder, organizations that have expended $750,000 or more of federal funds will be subject to an audit in accordance with the Uniform Guidance. A recently published article provides similar guidelines for a successful audit in accordance with the Uniform Guidance.

If you have questions about the information outlined above, please contact us, our seasoned and experienced nonprofit professionals are here to help. You can also learn more about our nonprofit services by visiting our Nonprofit industry page.

About the Author

Mark Welliver

Mark joined McKonly & Asbury in 2011 and is currently a Senior Manager with the firm. He works in the firm’s Audit & Assurance Segment focusing primarily on the areas of affordable housing and nonprofit organizations. Mark is a mem… Read more

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