With the fiscal year end around the corner, what comes next? The annual audit, of course! With the stress of year-end closing weighing on your mind, the last thing you may want to think about is the challenge of going through an audit. This process tends to make everyone uneasy and can undoubtedly lead to extra work, but it doesn’t have to be an experience to dread.
With proper preparation you can make the annual audit far less daunting than it may first appear. Taking certain steps ahead of time will help you get ready and ensure a smooth audit process—something both you and your audit team will certainly appreciate! Here’s how to prepare.
Ask your auditor for the “prepared by client list” (PBC list) well in advance.
The PBC list includes a number of items the auditor will need in order to begin the fieldwork of examining your records. While this is a preliminary list that may not cite every document needed to complete the audit, it’s a great place to start. At a minimum, this list will include bank and investment documents, payroll and human resources documentation, schedules for balance sheet accounts, accounting policies and procedures, and significant contracts or agreements. It’s a good idea to request this list from the audit team before your fiscal year-end. That way you can start pulling the requested documents and schedules while you are completing year-end close work, and check some of those items off the list at the same time. Even without the list in hand, you can gather things like monthly bank, investment and payroll statements before the year ends. Also think about any new agreements the company has entered during the year: leases, loan arrangements, new personnel or operations manuals, etc. You will definitely need these records, so go ahead and start compiling the relevant documents.
Send schedules to auditors as soon as they’re completed and reviewed.
Your audit team won’t mind getting schedules piecemeal as you complete them; the only thing they’re concerned about is receiving them in a timely fashion (not the day before the audit!). By sending the requested items over to your auditors at least two weeks before fieldwork is scheduled to begin, you’ll give your auditors plenty of time to complete audit planning and make selections for testing. This also gives you time to resolve any initial questions the auditors may have before fieldwork commences and allows more time for you to pull additional supporting documentation. As a result, you and your auditors will face less stress when the team arrives to conduct fieldwork, and everyone can focus on completing the necessary work. Your audit will probably be finished sooner, as well.
Make sure that schedules and reconciliation tie to the general ledger.
Take the time to check schedules and reconciliations before sending them to the audit team, ensuring that the documents you send match the figures in the general ledger. Making the effort beforehand can prevent a lot of wasted time and unnecessary stress during fieldwork. The extra time you spend to comb through details now is a wise financial investment, since the less time the auditors have to spend on catching or correcting mundane errors, the lower your audit fee will be (in future years if not this year).
It’s certainly tempting to procrastinate as your audit approaches, but by staying ahead of the game you’ll significantly reduce the amount of time, money and stress your audit will demand. Start the new fiscal year on the right foot by being well-prepared for your audit. And if you have questions or need help getting organized for your next audit, feel free to contact the audit professionals at HBP for a free consultation. We’re here for you all year around.
Written by Jenna Cava, Audit Supervisor