Just thinking of preparing for an audit or review might make you uneasy. It can be overwhelming and time-consuming. However, it does not need to be a daunting task … if you’re prepared. With some preparation, you should not experience any issues or significant delays. Like most things, keeping everything organized and on track is the best way to ensure a painless process.
Where To Start
Audits and reviews have different levels of assurance and different methods for determining an opinion or conclusion, but regardless of the level of assurance, a CPA must go through everything connected to the financial statement. It is imperative that the financial statement is ready, the books are closed and the trial balance is in order. If your accounting department is running behind, be sure to let your CPA know. Communication between you and your CPA is the best way to ensure everything is organized, on time and runs smoothly. In fact, having all of your documents and underlying support accessible and good communication will also help to keep your time and costs under control.
In order to improve the efficiency of the engagement, it’s best to prepare reconciliations for all of your significant balance sheet accounts and ensure that the reconciliations agree to both the supporting detail and the trial balance. Review your financial statements ahead of time and anticipate what questions a CPA might ask. Also, be sure to communicate any significant events or transactions ahead of time to avoid surprises during fieldwork.
In some cases, especially for audits, a CPA may do interim planning and testing in the fourth quarter to get a feel for how your business has performed year-to-date. This can give the team a level of comfort and a sense for what the year was like based on that information.
More Helpful Items To Have On Hand
- Request A Physical Inventory Observation (audits only). This will help make the auditor comfortable with your inventory quantities from the start, which will allow them to provide a complete report on your balance sheet and income statement and could help you avoid a scope limitation in the audit report.
- Provide Reconciliations And Account Summaries. Doing this helps the CPA review your balance sheet and avoid the hassle of trying to reconcile information back to the trial balances.
- Prepare Control Narratives Of Significant Transactions Cycles. Having accounts receivable and accounts payable information readily available will help the auditor understand the significant transaction cycles, key controls and each employee’s role in your business.
- Team Availability. Having your team accessible to answer questions during the audit or review process is vital and can help save time and money.
A CPA is required to verify the reports they use, so original documents such as bank statements, invoices, deposit information and the like are the best types of audit evidence. Sometimes, accountants might have to run tests on your systems’ data or ask you to run reports in front of them as a required audit step designed to verify the information they use in their testing is accurate and complete.
Be sure to ask any questions you may have before, during and after the audit or review. You are the best source of knowledge on what accounting information is available and useful at your company. If you understand what CPAs are looking for, that knowledge will help them to design the most effective and efficient procedures to use during your engagement.
Being prepared will help eliminate the stress that can come from requests for more information. Keep in mind that while the process can be frustrating, it is the nature of these types of engagements to ensure you are in good financial standing and that your internal processes are strong. Email the construction services team at Rea & Associates to learn more.
By Brent Ardit, CPA (Dublin office)