In today’s economy, many businesses are looking for ways to reduce waste. Being adequately prepared for your annual audit or review can help accomplish this. In my experience, audits and reviews can be completed more efficiently and with fewer headaches for both the client and the accountant if the following steps are implemented.
Communicate
Make sure that you communicate regularly with your financial institution and your CPA. Keeping your financial institution informed on how your business is doing will go a long way in helping to reduce their uncertainty in lending to your company and may allow them to feel comfortable with a reduced level of assurance such as a review instead of an audit.
Communicate with your accounting firm regarding accounting issues you are facing prior to fieldwork. This will allow them to be better prepared and may alleviate potential issues encountered during the audit/review. Ask your CPA if there is anything your company could be doing to reduce the amount of work required during the audit/review. There may be reconciliations or testing performed by the accounting firm that could be performed by your company’s accounting staff.
Prepare
Many times, companies see their audit/review as an opportunity for a third party to correct accounting errors made during the year. You may have experienced an audit/review that resulted in numerous proposed adjustments that were a direct result of errors found by the accounting firm. Your goal should be to eliminate most, if not all, of these adjustments by ensuring your accounting records are accurate. Meet with your accountant to determine what adjustments were made in the past, what caused them, and what your Company can do to prevent them in the future.
Have all financial records in order and reconciled to supporting schedules, make sure all journal entries have been made and understand why certain accounts are what they are. For example, be prepared to answer the questions, “Why has payroll increased by $100,000 compared to last year and why have revenues decreased by 40%?”
Your CPA should be providing you with a list of items that will be needed during the audit/review. This should be given to you early enough to give you the opportunity to get all of the information together prior to their visit to your office. Make sure your accounting firm knows when you need this list. Ensure that all requested items have been obtained or prepared prior to the audit/review fieldwork. Ideally, these items are ready and available as soon as the accountants walk through the door.
Be Proactive
During the audit/review, make sure the accountants know you are available and can be approached any time for questions. Make it a point to “check-in” on a regular basis throughout the day as the audit/review progresses.
Tell your CPA that you want to be aware of any issues discovered during the audit/review. Let them know that you want to have the opportunity to investigate any reconciliation issues, missing documents, etc. If a reconciliation appears incorrect, many accountants will redo the reconciliations themselves or spend time searching for documents which obviously increases time but isn’t necessarily something the auditor should be doing. Many companies want to handle these issues themselves with the staff they currently have.
Many companies spend substantially more time than necessary during the audit/review as a result of not being prepared. Some feel that this additional time is justified based on the resources available. However, many are just unaware of the steps that can be taken to reduce waste. Your CPA should be willing to discuss these waste reducing steps, especially during difficult economic times.
