THE GOAL
You and your auditor want the smoothest, quickest, and most efficient audit. The better prepared you are, the more you improve your chances of this being the case. As Abraham Lincoln said, “If I had eight hours to chop down a tree, I’d spend six sharpening my axe.”
THE BASICS
In addition to the usual and obvious documents needed for your audit (bank reconciliations, invoices, pay registers, etc.), other items should be considered. Although not all-inclusive, these are some tasks to add to your pre-audit to-do list:
TRANSACTIONS AND DISCLOSURES
- Ensure that beginning net assets agree with the prior year’s audited ending net assets.
- Ensure inter-fund accounts and net assets released from restrictions net to zero.
- Make sure you have considered all possible releases from restrictions.
- Consider any gifts in kind, their valuation methods, and additional disclosure requirements.
- Note any new significant transactions that require special attention or disclosure.
- Ensure that you are aware of any related party transactions and can provide details for these.
- Perform all reconciliations or account analyses and have someone other than the preparer review these (be sure that they document their review).
- Have explanations ready for any large fluctuations. This covers year-over-year account balances or current-year budget to actual variances. Also, qualitative or quantitative reasons for these changes should be considered.
- Ensure you have the latest signed permanent documents, such as leases and loan agreements.
- If you have loan covenants, perform an analysis throughout the year and close to your year-end.
- Consider contingencies if there were significant uses of attorneys during the year.
- Stay on top of relevant accounting pronouncements, tax law changes, and other regulatory requirements, and perform any implementation measures needed (tip: your auditor may have resources they can share with you!).
- Review any prior year adjusting journal entries or passed journal entries for relevance in the current year.
COMMUNICATION
- Delegate which team members are in charge of addressing specific audit requests. Inform other team members outside of accounting about the potential need to be involved to answer questions, i.e., HR, legal, IT, etc.
- Gather contact names and information for service organizations, bankers, pension custodians, material vendors, etc., as the auditor may need these for questions or confirmations.
- Establish a timeline internally and with the audit team and stick to it. Have periodic meetings with your team to assess progress and reprioritize tasks if needed. Communicate your progress with the audit team when you have your progress check-ins.
CONCERNING INTERNAL CONTROLS
- Update internal control narratives, being as specific as possible in your documentation as to the control point. In other words, what controls do you have to ensure that the amount on the financial statement is correct? (Tip: use job titles when referring to individuals instead of names; note whether any roles were not filled or had turnover during the year). Be sure these controls are accurate and are operating in place as opposed to what the organization aspires to have.
- Review any recommendations communicated during last year’s audit and be prepared to provide an update on their status. For any deficiencies that were resolved, provide support for the new procedures and controls that were implemented.
- Know your weak spots in internal control and anticipate potential deficiencies. Before proceeding, communicate any controls that were not implemented consistently to your auditor.
- Have a system to review SOC (system and organization control) reports from your service organizations at least annually and document this review. Pay particular attention to the listed complementary user entity controls to ensure these are in place.
ENHANCEMENTS
There are many additional finance and operating areas to consider beyond the basics for an audit. Here is a partial list of areas to consider that could enhance the organization’s well-being:
- Have there been any cybersecurity incidents or attack attempts? Is the IT team well-built, or could they use help designing and implementing IT controls? Have you provided training on what to look out for in suspicious emails?
- Do you have a policy regarding unclaimed property? Has unclaimed property been properly escheated? Have you performed an analysis of all unclaimed property?
- Does your retirement plan require an annual audit or amendment due to recent regulatory changes?
- Have you evaluated coverage and other policy matters regarding insurance policies?
- Does your organization have strong internal controls, or do you have any weak spots? Are duties properly segregated? Do those charged with governance have any concerns about internal controls? Are processes efficient and effective? Are controls working as designed, and are they implemented consistently?
- Do you need any forensic services to address any suspected or identified fraud?
- Are all significant positions properly staffed?
- Could your organization benefit from other services (valuation services, risk consulting, finance)?
Again, although we sometimes classify these enhancements as afterthoughts, they can actually serve to reduce expenses—small inefficiencies add up over time. If you identify any services your organization could benefit from, consider outsourcing them to specialists.
If you apply the basics and consider the enhancements, you will be better positioned for your audit, and this preparedness will lead to more efficient and cost-effective audits.
By Megan Moore, Supervisor, Assurance Services
