3 Key Steps to Prepare for a Successful Audit
Are you ready for an audit? As the year-end approaches, the annual audit begins to cast a larger and larger shadow over you and your team. Preparing for an audit can seem like an overwhelming amount of work, time, and effort. However, the proper preparation can save time and money in the long run as accounting standards are frequently updated, and the cost of audits continues to rise.
Completing a successful audit starts with planning throughout the year, including:
- Preparation and organization of balance sheet account reconciliations
- Documentation of proper reviews and SOX control environment
- Creation of technical accounting memos
It’s also important to develop a good relationship with the audit team early on, communicating and highlighting any issues or accounting changes as soon as possible. In this article, we will discuss the 3 key steps to achieve a successful audit and common pitfalls to avoid.
Establish Positive Culture & Attitude
Much can happen over the course of a year – accounting policy changes, employee turnover, acquisitions/divestitures, among others – that will have a huge impact on the audit. However, some things will remain consistent with the success of an audit, beginning with culture and attitude. Audits can be painful, but they are necessary for every accounting team. The faster your team members accept and embrace their roles in the audit, the more successful the audit will be. Culture includes a robust control environment.
For more information on creating a SOX framework, see SOX Controls: 5 Tips to Meet IT SOX Compliance Requirements; Preparing for Walkthroughs, and Successfully Navigate your Company to SOX Compliance.
Organize Records to Minimize Risk & Maintain Knowledge Management
An organized, internal shared drive for policy documents, reconciliations, and prior-year audit requests will help mitigate the risk of employee turnover (both internal and external auditors) and knowledge loss. Some requests and audit test work will remain standard for audits, year after year. These include balance sheet reconciliations (reviewed and tied to the trial balance), complete trial balance and financial statements, and significant contracts. Completion and accuracy of these should be a recurring focus throughout the year.
By saving these documents in a central, organized folder, you will avoid the common audit questions, “What is that request? What did we give you last year?” Process notes on how audit requests were created is an additional key step that will reduce the significant time for future year audits.
Conduct Planning Meetings to Establish Deadlines & Key Milestones
Conduct a planning meeting with the audit team prior to the start of their fieldwork. During this meeting, primary contacts from both sides should be established to track open items, obtain status updates, and ensure deliverables are not missed. Communicate how files will be shared (i.e., email, dropbox, auditor site) and create a timeline of key dates such as audit meetings, filing dates, and press releases to share with the team. Using the Prepared by Client (PBC) list provided by the audit team, identify responsible members for each task and ensure a due date is set. This listing should be reviewed together by management and the audit team during the planning meeting. Many times, this listing is simply rolled from prior years, and items may no longer be relevant. This is a good time to discuss with auditors and ensure time is not wasted on outdated requests.
As the start of fieldwork approaches, provide the trial balance along with reviewed account reconciliations as soon as possible. For SEC filing companies, financial statements, footnotes with disclosure checklists, and a financial statement tie-out binder should be completed and reviewed by management. Technical memos should be available for all significant accounting policies and new accounting guidance. The organization and accuracy of these documents will save significant time by avoiding back and forth from auditors.
The primary audit liaison should verify requests are provided to auditors and meet regularly with the audit team to ensure the information provided satisfies their requests. Managing “normal” tasks while keeping the audit focused is critical to completing the audit on time. Upon completion of the audit, meet with the team internally and with the auditors separately to debrief on what worked well and what changes can be made to facilitate a more efficient, successful audit in the future.
In summary, the keys to a successful audit are:
- Create a positive culture, stressing the value of audits
- Organization of audit requests (prior and current year)
- Process notes for future reperformance of audit requests
- Support (i.e., reconciliations, detail populations) that tie to trial balance
- Planning meeting early to establish key contacts, PBC list, and document transfer
- Audit debriefs with internal team and audit team
Common pitfalls to avoid:
- Disorganization of records leading to multiple requests
- Support that doesn’t tie out, leading to back and forth, multiple versions, and re-submission of requests
- Creating a culture of audit is a painful waste of time
- They are not meeting regularly with the audit team. Auditors will have their hands full and will not necessarily track past due requests for you. Meeting regularly will help the team meet deadlines and know which items are a top priority.
Audits are time-consuming and can be stressful for your team. Don’t know where to start? Bridgepoint Consulting offers a broad range of finance, technology, and risk/compliance services, including audit expertise, to help companies throughout their business lifecycle. Reach out today to learn more about how we can help fill gaps in your audit preparation.