Preparing for an Audit

Preparing for an audit can seem daunting to most businesses. However, the audit experience can be smooth with the proper plan in place.

Pre-audit Review

It is important to consider conducting a pre-audit review internally to assess your readiness and address any concerns that may emerge. When doing so, we recommend taking the following steps when preparing for for an audit:

1. Organize Your Documentation: Be proactive and maintain copies of all invoices, canceled checks, receipts, and other relevant documents such as operating agreements, debt or rental agreements, and any subsequent amendments. Ensure these agreements are executed by appropriate individuals within the organization. By organizing these materials, you will streamline the process when auditors request specific transactions or footnote support and eliminate any unnecessary waiting periods.  
2. Develop Strong Internal Control Processes: Take the initiative to create and document internal control policies and procedures. Having strong internal controls, appropriate segregation of duties, and well-documented process narratives will facilitate smooth auditor walkthroughs and reinforce your financial integrity. This will also save your team valuable time during the audit process. You should also be sure your audit team has a solid understanding of your specific industry. Be certain to include critical areas such as:
   • accounts receivable and cash receipts
   • accounts payable and cash disbursements
   • job costing (specific to the construction, manufacturing, and healthcare industries)
   • payroll
   • financial reporting and journal entry approvals
3. Timing of Audit: In order to set you up to meet your deadline, it’s important to remember that the audit process should typically begin three to four months before your fiscal year-end. This is the “planning” phase of the audit. Take time to reflect on any significant operational or personnel changes that impact the business and talk through those with the audit team. Actively work with the audit team to schedule walkthrough meetings of key transaction areas and perform other required planning procedures such as analytical reviews. There are often opportunities to perform interim tests of larger sample areas, i.e., revenue, fixed asset additions, etc., during this time period. This generally helps limit the time spent in these sections during the busier times of the audit subsequent to your year-end.
4. Close Books Promptly: Aim to close the fiscal period promptly while allowing for appropriate levels of review across each transaction cycle. Ensure account schedules and reconciliations agree to the appropriate trial balance accounts or subledger details. This proactive approach allows the management team the necessary time to prepare and provide the requested audit support but will also allow for the completion of procedures well in advance of the deadline.
5. Schedule the Audit Timeline: Work with your external auditor to ensure an agreed-upon timeline that fits your close schedule and the required deadline for your statements. Assign an individual from your team, such as your controller, to oversee the audit process and schedule meetings to discuss open items throughout the audit. This process will ensure appropriate progress is being made. Open and active communication from both sides is paramount to a successful audit.
6. Gather Support and Requested Documents: Proactively engage the audit team to provide a list of requested documents well in advance of the formal kickoff of the audit to allow your team the appropriate time to gather the requested documentation. Utilize a safe and secure method for transferring supporting documents to your audit team. Timely and active communication will allow for a quick start to audit procedures and foster a collaborative environment for both teams.
7. Prepare for Constructive Interviews: Get ready for interviews with the audit team by reviewing requested supporting documentation and potential questions they may ask, including those related to fraud. Approach this as an opportunity to demonstrate your experience with your Company and your industry. Be transparent, as this builds credibility and strengthens the audit process. If you are unsure of an answer or don’t understand a request, don’t hesitate to ask for clarification. Collaboration in this process is essential.

While the audit process can sometimes be intense, following the above recommended steps makes it possible to have an effective, efficient, and smooth audit.

Our team at Wouch Maloney CPAs is committed to providing audit support tailored to your unique needs. We will help you navigate the complexities of the audit process during every step of the way.

Should you have questions about this or any other topics related to your personal or business situation, please contact us at any time.

Tyler Rutter, CPA, contributed to this article.

DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update and other related communications are intended to provide general information, as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.