Businesses: How to Help Prepare for Audit Season
The busiest time of year for external financial statement auditors generally runs from January to April each year. But CPAs usually start gearing up for audit season in November of the preceding year. Accountants meet with clients, assign staff and schedule fieldwork. Then, the team conducts preliminary financial analytics, observes physical inventory counts, assesses risk factors and customizes your audit plan. Now it's time for clients with calendar year ends to prepare for audit fieldwork to begin. Are you ready? A little advanced preparation can go a long way toward facilitating the process, minimizing adjustments and surprises, lowering future accounting fees and getting more value out of the audit process. Ready, Set, Audit Preparing for a financial audit requires more than finding a dedicated spot on your premises for the team to conduct its fieldwork. Here's a checklist of other preparatory steps you can take: Adopt a positive frame of mind. Some CFOs and controllers see audit fieldwork as a painstaking disruption to their daily operations. They may begrudge having to explain their business operations and accounting procedures to critical outsiders who will highlight mistakes and weaknesses in financial reporting. Although no one likes to be questioned or critiqued, audits shouldn't be adversarial. Your external auditor is a resource that can provide assurance about your financial reporting to lenders and investors, offer fresh insights and accounting expertise, and recommend ways to strengthen internal controls and minimize risks. Before fieldwork begins, gather your accounting staff to explain the purpose and benefits of financial statement audits. Novice staff may confuse financial audits with IRS audits, causing them to be guarded and uncooperative. But in-house accountants can be open and candid with their CPA advisers. Assign a liaison. Pick a knowledgeable person in the accounting department to be available to answer inquiries and prepare document requests. This will minimize confusion and duplication of effort within the accounting department, as well as minimize the time that external auditors are on your premises. Establish a timeline. No one likes to wait to find out their final profit numbers or tax bill. So work out a schedule for your audit team that includes these important dates:- Start of fieldwork;
- Disclosure of adjusting journal entries and adjusted trial balance;
- Preparation of preliminary tax numbers; and
- Delivery of financial statements and tax returns.
- Bank statements;
- Sales contracts;
- Leases;
- Loan agreements;
- Insurance policies;
- Minutes of board meetings;
- Legal bills; and
- Year-end payroll and sales tax reports.
More on Financial Audits
If your company is publicly traded, the Securities and Exchange Commission requires audited financial statements. Not-for-profits may need financial audits if they receive federal or state funding. And lenders or venture capital firms may require some private borrowers to obtain audits. In some rare instances, the IRS even requests a financial audit as part of a broader tax audit. So what's the purpose of a financial audit?
Not to be confused with tax audits, financial statement audits determine whether the statements are materially correct under U.S. Generally Accepted Accounting Principles (GAAP). This generally requires the auditor to:
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