Five Tips on Preparing for a Financial Statement Audit
Financial statement audits are a great way to add value to an organization, by ensuring accurate annual reporting to donors, lenders, and the board of directors. However, many times audits can also feel like a stressful and burdensome addition to an already busy schedule. It doesn’t have to be that way!
This article will highlight five ways to ensure the audit process goes smoothly and efficiently for all parties involved.
- Prepare for the audit throughout the year. Often the things that can complicate or prolong an audit can be addressed in advance. Be sure to communicate with the auditor throughout the year, discussing items like new programs or activities, asset acquisitions, and complex accounting issues. It may also be beneficial to create a “pre-audit” file that includes items such as new or modified agreements, fixed asset addition support, and documentation for complicated or unusual transactions. Getting ahead of these items before the audit generally means less work during the audit itself.
- Select a responsible individual. Pick a single individual with authority to be the primary point of contact with the auditors. In most organizations, this will generally be the accounting manager or individual charged with financial reporting responsibilities. Selecting one person with ultimate responsibility is important because it ensures accountability and ownership of the process.
- Get the team to “buy-in”. Sometimes it may feel nearly impossible to collect all of the items needed for the audit from staff. In most cases, this problem can be overcome by addressing it on the front end. This can be done by communicating the purpose and process of the audit to the team beforehand. Let them know why the audit is important and what it means to the organization. Be clear about what is expected from them and when it’s expected. Also, be sure to show appreciation for their efforts and let them know that their work is key to making the audit a success.
- Obtain an audit information request list from the auditor before year-end closing. Getting the initial audit request list as early as possible will provide the opportunity to spread out the workload for gathering request items. Having the knowledge of what will need to be provided to the auditors beforehand will allow the focus to stay on the right areas when working through the year-end closing activities.
- Reconcile all significant accounts. This one may seem obvious, but it is perhaps the most critical step to make sure the audit goes according to plan. Failing to reconcile accounts can quickly derail an audit by adding extra time and effort for both staff and the auditors to correct errors. Creating a checklist of significant accounts and performing a self-review beforehand can go a long way to prevent issues and potential audit adjustments.