Whether preparing for a first-year audit or looking to simplify the existing audit process, there are proactive steps a company can take to have a smooth and relatively painless corporate financial statement audit. Closely held, entrepreneurial businesses often have limited resources and their efforts are focused on the day to day opportunities. Fitting in the extra tasks for an audit can be difficult, but there are some ways to have an audit that is not too disruptive. The following tips should be considered before the work begins and focus on two main areas: planning and fieldwork.
Audit Process Tips
Planning the Audit
Typically, the auditors should be facilitating planning meetings with management before the start of the engagement. The following points should be covered during these meetings:
Designating a Point of Contact
The point of contact should be the key team player on the company side that will be coordinating with the auditors and providing the majority of the audit request items or coordinating others to provide information. It is important that someone is managing the request items (either in total or by area) and providing them in a consistent fashion. If multiple people are involved and requests aren’t filtered through one point of contact, others may assume someone else is providing a specific request – and items may be missed. Often when requested items are provided by more than one person inefficiencies are the result.
Articulate Preferred Communication Approach
Most auditors will default to using e-mail to stay in touch while not onsite; however, if it is more effective to discuss items over the phone, in person, or at certain times during the week, let the audit team know. This will allow them to make accommodations and plan accordingly to effectively integrate their existing communication style with the preferred approach.
In addition to the obvious audit report deadline, setting a timeline to back-chain the main objectives of the audit is key to a timely and smooth audit delivery. To effectively hold the auditor accountable for providing deliverables, the company also needs to hold themselves accountable by providing priority items in a timely manner, allowing the audit to continue as scheduled.
Prepare Your Team
It’s important to identify the company’s internal audit team. If assistance is needed in identifying these individuals, ask the auditor during the planning meeting to get an idea of which transaction cycles they will be interested in, and accordingly, who will need to provide assistance. Take the time to ensure these people are available and that any timing constraints are properly addressed (consider officers, AR/AP clerks, inventory managers, payroll personnel, IT personnel, etc.)
Communicate Specific Site Needs
If a full physical inventory count is necessary, for example, inform the auditors so they can ensure they have the staff available as soon as the date is known. Additionally, if there are anticipated timing constraints or limited availability for the year-end audit, the sooner that message is communicated and fieldwork is scheduled, the greater chance the auditors will be able to accommodate and commit to the timeline.
Effectively managing the fieldwork and audit conclusion process requires a proactive approach inclusive of the following considerations:
Schedule a Realistic Timeframe for Audit Fieldwork
It’s easy to want the audit fieldwork completed sooner than later. However, fieldwork should be thoughtfully scheduled for a time when the books can be reasonably closed and records prepared. Additionally, there is a perception that the faster the audit fieldwork is completed, the quicker the audit is finalized. While there should be a goal to keep the audit moving quickly to avoid inefficiencies, allowing a longer window of fieldwork time can contribute to a quicker turnaround. This way, the auditors are able to continue obtaining audit evidence at a faster pace and distractions are minimized.
Supporting Schedules Must Agree to Trial Balance
It may seem simple, but supporting schedules must agree to the trial balance. This is often not the case. It’s also a best practice to reduce subsequent adjustments and ensure the numbers are in final form before providing them to auditors to prevent rework.
Ensure Testing Support is Clearly Identified
As audit support is gathered, be sure to clearly label the item (whether in-person or electronically) to reduce any confusion about what has been provided.
Share Known Errors
Auditors are required to dig even deeper and isolate errors when found, typically resulting in higher fees. If an audit client brings an issue to the surface before the auditors discover it, and is able to provide support as to why the issue is isolated along with the steps necessary to correct the issue, it will generally reduce the amount of time and effort focused on that problem area.
Track Open Items
Tracking outstanding items and comparing this list to the auditors’ list will ensure everyone is on the same page and there are no surprises about what remains open. Technology has introduced a number of tools to facilitate this process. Make sure that you spend time with the auditor to understand how to use the tool and then work to keep it updated.
Request Auditors to Communicate Issues and Potential Adjustments
While the auditors should already be doing this, it doesn’t hurt to ask or remind them that the company would like to be notified of issues as soon as they are identified. If matters are able to be researched and rectified as they occur, it will result in fewer surprises and headaches at the conclusion of the audit.
Continue the Conversation
The assurance department at Clayton & McKervey has been trained to help coach their audit clients to practice the above strategies. Even if your audit firm is not guiding you through this process as well as you’d like, you should take the time to reflect and give honest and constructive feedback to your auditors. After all, if you are pulling your weight with the above steps, the audit should really be an informative and helpful process.