Our clients often ask us many wide-ranging questions, everything from guidance on new accounting standards to our favorite breweries. But the most common question we receive from audit clients is, how do we recommend they prepare for an upcoming financial statement audit? I suspect I know what many of you are thinking; and no, the answer is not to pray. From my four years of experience performing audits, I believe the best way for a client to prepare for an audit include the following priorities:
As their first priority, a client should begin to compile support documentation during their normal, everyday work processes. Auditors typically request such support documentation in the client assistance listings prior to the audit, such as year-end bank reconciliations, bank statements for the final month of the year and first subsequent month, and accounts payable and accounts receivable aging reports. As these documents are typically compiled and reviewed as part of each month-end and year-end close process, storing these support documents in an audit folder on their computer desktop will alleviate for a client the hassle of having to look for these documents when approaching the audit fieldwork date.
When files are readily available, either after the year-end close process or while gathering them according to the client assistance listing, a client can coordinate with the audit team to send the documents either in one complete package or piecemeal. I let my clients know that it is no bother for me to receive multiple document uploads or emails from them, especially when the files are sent in advance of the fieldwork dates. Although we do our best to accommodate clients in the event files are not received timely, sending files in advance will ensure the fieldwork timing stays on track. Additionally, if files are received in advance, it helps avoid the implementation of a compressed timeline for both the client and the audit team during the actual onsite or remote fieldwork. Further, we strive to promptly make audit selections in advance to prevent bombarding a client with an excessive amount of testing selections and inquiries the first few days of fieldwork. We fully understand that the audit is typically an additional responsibility added onto a client’s day-to-day responsibilities; so, being able to send the client audit selections in advance helps to provide additional time for a client to prepare for the fieldwork.
“Marc, in your opinion what’s the most important document you want to receive in advance of fieldwork?” Wow, great question! The trial balance should always be the first document to send to the auditor in advance of the start of fieldwork. This allows the audit team to calculate the planning materiality and perform the scoping exercise for accounts to be tested. Even if the trial balance requires a few additional entries, it provides the audit team with the visibility to make any additional requests for support documentation in advance of the scheduled fieldwork date.
A client’s second-highest priority should be providing the listing of all journal entries to the audit team. Rather than requesting a detail listing by account for selected accounts, specifically expense accounts, our audit teams utilize the journal entry listing to make selections without having to request any additional account detail.
In addition to providing documents, preparing for an upcoming audit is the perfect time for a client to do an internal review of operations while updating their company or organization’s internal control narratives. This can help to identify operational inefficiencies and/or ways to improve segregation of duties.
The last, but by no means least, priority for a client when preparing for an upcoming audit is to not be afraid to ask the auditor any relevant questions. Contrary to popular belief, auditors aren’t evil robots. We understand the process can be stressful; so, helping to alleviate such stress for a client is always important to us. We’re happy to provide a client with documents received in the prior year audit, to help them identify what we have requested for the current year; or discuss ways to improve the audit from either or both the client’s perspective or our audit team’s perspective.
For more information on how to best prepare for a financial statement audit, or if you have other audit questions, please contact Marc Mallare, CPA, MBA, Senior Accountant, at Tronconi Segarra & Associates LLP. He can be reached at MMallare@tsacpa.com or (716) 633-1373.