A little bit of well thought-out preparation for your organization’s annual audit may reduce the cost of the audit but will definitely make the audit process less stressful.
Start by anticipating a few common questions and by having the answers ready for your external accountant.
Be Sure to Balance
Ensure that the Trial Balance provided from the previous fiscal year’s audit matches the opening Trial Balance for the fiscal year being audited, because this is first thing an auditor is going to verify. Too often, this is not the case.
Your PBC Is Just The Start
Your auditor will provide you with a list of information that they will require you to have prepared for the audit. I recommend that the Provided by Client (PBC) list should be considered the minimum information you provide.
Our office provides this information in two formats:
- Three-ring binder where the PBC list is the Table of Contents
- Excel workbook
Data exported from accounting software is often in a format that is neither easy to read on a monitor nor on printed page
We reformat each worksheet in the workbook to make it easier to read
Saving Money by Saving Time for the Audit Staff
The following suggested additional information will save your audit staff time, will reduce your bookkeeper’s stress, and may reduce your audit fee:
- Identify any changes in financial recordkeeping processes/procedures, in the way your organization does business, and if anything has occurred since the end of the fiscal year
Your auditor will asked these questions at the start of the audit process, his/her notes may not perfectly capture the information, or you may forget to mention something during this “pre-audit” interview; putting everything into writing in advance makes things easier and more accurate
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- Create a comparative Statement of Financial Position and a Statement of Operations and explain the reasons for “significant” changes (say > 10%) from the prior year
- Use the same General Ledger codes in your organization’s Chart of Accounts as your auditor uses on the Trial Balance
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Every line that appears on a financial statement has a number assigned to it; if the auditor has made a change, it is saving him/her time if their numbering system matches yours
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- Prepare a draft set of financial statements including the notes, for the year being audited in the same format as the previous year’s audited financial statements prepared by the auditor
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This is easy to do; ask your auditor to provide you with a copy of last year’s audited statements in an Excel format and create a column for fiscal year ending audited; ask for the notes in a Word format so that you can suggest changes/additions/deletions using Word’s review functionality
Again, the more you do, the less the auditor will have to do.
The Final Step
The final step in getting the materials ready for an audit is to create an Accountant’s Copy of the accounting software’s data file.
Creating an Accountant’s Copy makes it impossible for you to make changes to the data for the year being audited. This allows you to be able to continue entering data for the current year without the possibility of making changes to the financial information being reviewed by the auditor.
It is a good idea for you to back up your data before creating an Accountant’s Copy, just in case…
Once the audit has been completed, the Adjusting Journal Entries prepared by the auditor can be entered in the file you backed up. Once you are certain that the Trial Balance provided by the auditor matches the Trial Balance in your organization’s accounting software, you should lock the data to prevent accidental changes to the financial records that have been audited.
Remember the 5 P’s (Prior Planning Prevents Poor Performance)
Prior planning for the annual audit will help to ensure that the financial statements are usable, accurate, and prepared using as little of the auditor’s time as possible.
If you have any questions related to financial management or have suggestions for an upcoming article, then please feel free to email me at mhs@strauss.ca.
The above is provided for informational purposes only. It does not constitute accounting, or other professional advice, and you may not rely on it as such.