Are you and your business ready for your audit team to arrive? I mean really ready. Being well-prepared for your external audit team is critical to ensuring an efficient audit. Beyond providing adequate workspace and access to information and personnel, there is advance ground work to consider. Before the audit process even begins, the first […]
Are you and your business ready for your audit team to arrive? I mean really ready.
Being well-prepared for your external audit team is critical to ensuring an efficient audit. Beyond providing adequate workspace and access to information and personnel, there is advance ground work to consider.
Before the audit process even begins, the first concern to be addressed is identifying exactly who will be relying on the financial statements and for what purpose. Is a sale of the business being contemplated? Will the financial statements be utilized in a valuation of the business? Are there regulatory requirements?
Timelines and expectations should be established early and communicated clearly, along with the precise nature of the financial statements to be issued. In circumstances where the scope of the audit will be limited in any way, a detailed discussion must take place.
When non-attest, or “other,” work is to be performed, a clear understanding must be developed. Whether the accounting firm will be assisting in the preparation of financial statements or tax-compliance filings, the nature and responsibility for the work must be established and documented.
In addition, well in advance of the audit, a comprehensive schedule of all checking, savings, money market, investment, transaction, clearing, and debt accounts should be compiled, including complete contact information. Copies of all new debt agreements and banking resolutions should be gathered for the external auditor to facilitate planning.
Closing documents for significant assets purchased or disposed of must also be available. Have you agreed to purchase or sell a significant asset, or perhaps lease a new vehicle or building? Even if you have not consummated the transaction, the documents are still necessary to support financial-statement disclosures, so be sure to provide them to your auditor. The issuance or retirement of stock or agreement to pay off retiring owners all come with documents that should be added to the list, as should settlement agreements with taxing authorities, customers, or vendors.
Some of the most-often forgotten documents include up-to-date minutes from board and other governance meetings, including annual meetings and related resolutions. These particular items must be updated throughout the audit process so be sure to stay on top of communicating to the audit team.
Advance preparation in connection with your annual audit is critical to the process. A well-prepared organization can improve efficiency and avoid hampering progress or completion. There are always plenty of items to chase down during audit fieldwork, so be sure the early gathering is completed well before the audit fieldwork begins. By the way — much of the data gathering noted here is also necessary when financial statements will be reviewed or compiled.
Here is a quick list of documents that should be provided to your external accountants as early as possible: loan documents, lease documents, documents relating to the purchase or sale of significant assets, settlement agreements, amortizations schedules, cash and investment account statements, factoring agreements, stock books, board minutes, whistleblower policies, employee handbooks, employment contracts, policy and procedure manuals, benefit-plan documents, regulatory and compliance documents, court decrees, documents regarding pending litigation, commitments or contingencies, IRS or state taxing authority correspondence, communications from any agency or organization with whom you have undergone review or audit. In short, anything that supports what you own, what you owe, what has occurred operationally, or what is required for inclusion in your financial statements.
There is a bright side to all of this. With a bit of organization, forward thought, and communication, the burden can be greatly reduced. The first step is opening the dialogue by calling your CPA.
Gail Kinsella is a partner in the accounting firm of Testone, Marshall & Discenza, LLP. Contact Kinsella at gkinsella@tmdcpas.com