Financial audit are not small affairs. It is an official way to decide if you are running an established and genuine organization. Other reasons to conduct an audit include verifying that you comply with regulatory agencies, assure your stakeholders of your company’s financial position, and protect your company from the risk of fraudulent financial practices.

If you have your audit date in the coming months, you need to roll up your sleeves and start preparing right away. There are steps you can take, including the following:

1.   Get organized

This is the most crucial step that you can take to prepare for your financial statement audit. Before the auditor arrives, get your things in place. Be sure you have a reconciled trial balance with all of the post-year-end adjustments. Reconcile all significant accounts including but not limited to cash, accounts receivable, inventory, accounts payable, and accrued expenses. Most adjustments that are discovered during audit fieldwork relate to reconciliations not being prepared. Additionally, it ensures that you have support for any significant reconciling items. 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.

2.   Review Your Own Financial Information

This may be difficult if your company is very large, but if you are the business owner of a small organization, your financials should make sense to you. Look at it like this, if you can’t understand your financial information or they don’t make sense to you. Your auditors may also struggle to understand them, which adds more time to their investigation. So if you understand your financial situation well, you will be able to explain it to your auditor upfront.

3.   Develop a Timeline and Assign Responsibilities

Review the list of work papers and schedules requested by the auditors, making sure to obtain clarification of the requested information when necessary. Assign each item from the list to a responsible person and include a due date. Make sure to allow adequate time for review and correction of schedules if necessary. Tackle the most difficult, complex, or time-consuming areas first when possible. The drafts of the financial statements, schedules, work papers, or other items requested by the auditor should be available on or before the first day of audit fieldwork.

4.   Gather Your Documents

During the preparation phase of your audit, your auditor will request a list of documents and schedules. You and your staff or your accountant should be able to generate or gather various documentation. The list of documents you will require includes general ledger of the financial year, list of board of directors for the fiscal year, fiscal year budget, documents of investments, accounting policies, lease agreements, all paid bills, bank statements, employee handbook, and a lot more. It is best to turn in this information by the auditor’s deadline, so they do not have to spend extra time and money tracking it down. These documents will be reviewed by your auditor during the audit and will be utilized to prepare the footnotes to your financial statements.

5.   Ask Questions and Clarify

If an item requested by the auditor is unclear, ask for clarification prior to the start of fieldwork to avoid potential delays. Auditors are generally happy to answer accounting questions regarding unusual or infrequent transactions the organization may need assistance in accounting for. Also, ask questions of those within the organization to obtain information necessary to prepare the required footnote disclosures. Such discussions could include significant accounting estimates, pending or threatened litigation, related party transactions, commitments and contingencies, and other topics necessary to prepare required footnote disclosures.

6.   Ensure compliance

Be sure that you comply 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.

7.   Communicate Significant Changes

Identify and communicate to the audit team all significant changes in business operations and if there were changes in accounting method from the previous fiscal year audit. If you are able to address any such changes before time, it will ensure that your audit goes smoothly. Likewise, if during the year you enter into a major transaction such as getting a new debt, signing a new lease, changing accounting principles, or adopting new accounting pronouncements, communicate such changes to your auditor upfront. Working through a transaction after it occurs allows for monthly reporting to be correct.

8.   Request documentation

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.

9.   Prepare Throughout the Year

If you put good processes in place, you can save time and money. Reconcile your information on a monthly or quarterly basis so that errors do not compound. Regularly document your expenses and revenue during the year, and designate a place to store them, so you do not have to struggle to find things.

Financial statement audits can be a daunting and stressful process, however, with an adequate amount of preparation and communication between you and the auditor, the process can be relatively simpler.

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