Preparing for a Financial Audit
By Randy Cohen
“We’re being audited.”
Those three little words can strike fear into the heart of any executive. Nobody likes the prospect of an outsider combing through the books and potentially exposing errors. Yet as unpleasant as a financial audit can be, with the right attitude and approach, it can prove a valuable tool for improving your business — and an auditor can be viewed as a trusted adviser instead of as an adversary.
The key to an efficient and successful financial audit is preparation. Being well prepared for an audit saves time and money and ultimately helps your business achieve the desired outcome: an accurate financial statement. Here are some tips for making the process as painless as possible.
Before the auditor arrives, get your ducks in a row. Be sure you have a reconciled trial balance with all of the posted year-end adjustments recorded. Closing out the financial year that the auditor will be reviewing saves time, as it’s difficult to audit efficiently when the numbers are still changing. Coordinate staff to assist with the audit, and ask how many auditors will be working in your office, as you’ll need to provide them adequate space.
Be sure that you are in compliance with financial covenants, such as minimum net worth requirements and current ratio restrictions. Also be aware that if this is a first-year audit, auditors will need more time than in subsequent years in order to prepare additional documents and memos.
Set a timeline
Good communication with the auditors is critical to avoiding surprises, and creating a timeline for the audit up front is a crucial step in establishing that dialogue. Determine when the audit will start and end, as well as any incremental deadlines, and get it in writing. Obtain a detailed list from the auditors of which documents and information they’ll need to see. Also request any necessary confirmations promptly to save auditors time spent waiting for responses. Remember: The duration of the audit will depend on both the size of your company and the extent to which you’ve prepared.
Once the audit is finished, request supporting documentation of any adjustments the auditors made, as well as the account combinations and adjusted trial balance used in preparing the financial statement.
By preparing in advance of an audit, you can minimize the disruption to your business and make the process a little less painful.
Randy Cohen is an Audit Manager with over 20 years of experience providing clients in government, not-for profits, and commercial organizations with the knowledge to operate efficiently and profitably. He helps clients get the most out of their financial information and uncover potential sources of opportunity. You can reach Randy at 973.994.9400 or email@example.com.