Planning for Your Annual Audit

Is Your Annual Audit A Positive Experience?

You may view an audit as an annual ordeal specifically designed to complicate your life.

Actually, it's simply a verification process of your company's financial systems and statements.

After the auditors gather sufficient evidence to satisfy them that your financial statements are fairly stated, they can give an opinion on those statements.

In other words, you issue the financial statements. The auditors merely test and conclude whether the statements are materially correct and whether the systems and procedures used to generate the financial information are free from obvious design deficiencies.

But our firm's professional service philosophy recognizes that you deserve more than a financial statement opinion. The audit should be a springboard into more effective management tools and ideas that allow you to look forward to a more successful future.

Through our audit engagements, we typically identify opportunities for improvement. We wrap many value-added services around the basic audit so that it is truly a win-win arrangement for all involved.

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What should we expect in our audit?

An external auditor has been described as one who enters a battlefield after the fight and bayonets the wounded. But you should view the auditor as a resource, not an adversary.

The internal accounting staff and the outside auditing firm should work together to ensure that financial statements are usable, accurate and timely. Meeting these goals gives users higher confidence in the statements and helps you recognize opportunities for improvement.

Since auditors express an opinion on the broad financial statements, most of the detailed schedules they request are merely items your company should have as part of its normal accounting procedures.

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Why should we prepare for our audit?

“I'm busy enough doing my job. Now I'm expected to do most of yours, too?”

If you catch yourself uttering this type of sentiment when asked to prepare schedules for the auditors, consider the benefits you accrue through the audit. The auditor systematically and objectively obtains and evaluates evidence about the basic financial statement assertions contained in your numbers:

Preparing for the annual audit will not only assist the auditors but also ensure that you have a better understanding of your job and increase your value to your organization. Through open communication and cooperation, you can expect a straight answer to the basic question: “How am I doing?”

By working together, you and the auditors are more likely to discover ways to improve efficiency and minimize errors. Although the audit function can be disruptive and intrusive, your cooperation in supplying the needed information will contribute greatly to the speed with which the outside auditors can do their work and get out of your way.

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How can preparation be an investment?

The annual audit can be an expensive undertaking, in both your time and your company's money. However, the audit can be more of an investment than an expense if auditors are free to analyze and evaluate accounts and procedures, rather than preparing accounting-type schedules. This can be achieved only through preparation, coordination and cooperation among the teams involved in the audit.

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Why is a CPA's audit good for our business?

Increasing regulations, confusing accounting standards and complex financing and business arrangements intensify the need for today's CPA firm to maintain an exceptionally high degree of involvement and communication with you and others in your industry. Even though auditors must remain independent and objective, the CPA firm should be your company's most trusted adviser and resource.

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15 Ways to Prepare for Your Audit

  1. Be prepared to discuss any changes in the following:
    • Governance, management, ownership
    • Operations, raw materials, distribution
    • Technology, personnel, union relations
    • Economic/industry developments and their impact on your operations
  2. Prepare to discuss significant estimates used in the financial statements, such as allowance for uncollectible accounts, warranty reserves and percentage of completion.
  3. Explain significant actual-to-budget and prior-year variances. Be prepared to discuss the results of the year based on your expectations going into the year.
  4. Determine contact people for specific areas under audit and any potential scheduling conflicts, such as vacations, scheduled medical procedures, work schedules, out-of-town needs and holidays.
  5. Discuss with the auditor the need for assistance and establish a high priority for agreed-upon items.
  6. Ensure the time frame is fair to you and your staff.
  7. Request templates, copies of prior working papers and clarification so that you can prepare information in a format acceptable to the auditor.
  8. Discuss procedures to be performed with management, timing of the engagement and deadlines.
  9. Reconcile detail to general ledger account totals. For example, reconcile all bank accounts, accounts receivable, accounts payable and equipment lists.
  10. Ask why a particular schedule is requested if you don't know. You may have a better source for that information, it may already exist in an alternative format or you may learn a better way to organize your routine tasks as a result.
  11. Alert the auditor to any outside consultants, regulatory agency inquiries or future plans, and provide related reports and correspondence.
  12. Be open and candid. You'll be asked about questionable accounting practices or pressures, fraud risk factors and known deficiencies in accounting systems.
  13. Establish an “auditor” file for regulatory agency correspondence and for copies of new or changed documents about fixed asset additions and disposals, debt agreements, leasing arrangements, law suits, complex transactions, technology modifications and major customers and vendors.
  14. Be open with the auditor about difficult areas you've encountered, concerns, questions and recommendations you may have about your job, your business or the industry.
  15. Stay in contact with the auditor throughout the year about matters such as changes in entity, personnel, industry, debt, ownership, business direction, business plan and chart of accounts.

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How you benefit from our services

Auditing services – Our auditing professionals have experience in analyzing financial systems and statements. Issuing a financial statement opinion based on professional accounting standards in a timely manner is only the beginning of the services we provide. We strive to become acquainted with your business and its operations. Equipped with this knowledge, we can offer objective advice on ways to improve your financial reporting and internal control systems to maximize your profitability and efficiency.

Highly trained and experienced staff – As CPAs, we are qualified to issue formal statements with comprehensive information in situations where they will be used by third parties, such as lenders, investors or purchasers. Your business can depend on our auditing expertise.

International access to professionals – Our firm is affiliated with CPAmerica International, a global association of accounting firms with access to professionals in virtually every industry across the country. You benefit by receiving targeted advice and service, regardless of your industry.

For more information, please call us to make an appointment.

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© May 2007 CPAmerica International