Top 10 things to prepare for an audit
These tips will help make an audit more efficient and keep audit costs down. Many can be added to your routine business practices, reducing the stress that comes with annual audits.
1) Schedule dates ahead of time
Plan a pre-audit meeting or phone conversation with your auditor and discuss the following timelines:
a) Deliverables: What reporting deadlines have to be met? For example, regulatory filing deadlines, by-law reporting requirements, and Board and general members meetings. This will help ensure that there is enough time to complete the audit, determine if the time frame is reasonable, and create a shared understanding of the due dates of deliverables.
b) The start and length of time for fieldwork: Determine the time it will take to complete the process from start to finish, and ensure the necessary staff are available to speak to the auditor during their fieldwork.
c) Delivering documents and files to the auditor: The auditor will send you a list of items they require ahead of time to prepare for the fieldwork. A delay in providing the required documents and files may jeopardize the timelines for receiving the deliverables.
d) Meeting dates: By discussing meeting dates (with the audit committee, Board, and general members) the auditor will be able to confirm if they are able to attend.
2) Practice good records management
Make sure documents (paper and electronic) are organized and up to date. Organizing documents could be as simple as filing them so they can be retrieved quickly if the auditor requests them. Ensuring documents are up to date is important because the auditor will be reviewing documents subsequent to the fiscal year end and up to the date of their report. Poor record management can cause a delay in receiving deliverables.
3) Document changes throughout the year
Documenting changes that have happened throughout the year will provide the auditor with the necessary information for their risk assessment. Examples of changes that you should document (and inform the auditor about) include:
- New staff or staff structure
- Changes in operations
- Accounting system
- Board members
- Contracts, including management
- Government assistance
- Regulatory requirements
- Contributed capital assets or disposal of capital assets
- Insurance claims
- Canada Revenue Agency reassessments
- Unusual or complex transactions
- Application of accounting policies
- Related party transactions
- Internal control processes
- Computer problems (i.e. security threats, unauthorized access to data, system crashes)
- Known non-compliance of legislation
4) Keep accounting records up to date, accurate, and organized
Review the financial statements and be prepared to explain the account balances. Check to ensure that:
- Last year’s adjustments have been posted, and if applicable, reversing entries have been posted
- Accounting records are in accordance with accrual accounting
- Bank and investment accounts are reconciled to the monthly/quarterly statements
- Payroll accounts are reconciled to the T4 summary
- General ledger balances for accounts receivable, prepaid expenses, capital assets, accounts payable, deferred revenue, and rent deposits agree to their respective lists
- Reconcile contracts, government assistance, rental revenue, mortgage accounts, and reserve activity to the general ledger
It’s a good idea to perform these activities monthly and where necessary, quarterly. This will help to resolve unreconciled differences more quickly. Going forward, you can save a significant amount of time in preparing the accounting records for the audit, and relieve some of the stress that comes with audits.
5) Review the receivable account and determine collectability before finalizing year-end figures
If some receivables can’t be collected, determine if they should be recorded in the Allowance for Doubtful Accounts or written off. Obtain Board of Directors approval for accounts set up in Allowance for Doubtful Accounts and written off. Document your findings, the reasons for uncollected receivables, and efforts made to collect the money owning.
6) Document internal controls systems
Provide the auditor with details on internal controls you have implemented, to help them determine their audit approach. Review the previous year’s letter from the auditor, looking for references to weaknesses in internal controls, and document how the weaknesses have been addressed.
7) Provide resources from your internal auditor
If you have an internal auditor that prepares schedules or working papers, provide these documents to the auditor, as this could affect their audit approach – and even save you money on audit fees!
8) Send the requested documents and files to the auditor by the agreed upon date
This will allow the auditor to perform the necessary audit procedures in advance of fieldwork and reduce the risk of delaying the receipt of deliverables. Your auditor will most likely request the following documents:
- Engagement letter
- Confirmation letters: These may include confirmations for bank, investment, lawyers, and accounts receivable / accounts payable. Don’t forget to factor in sufficient time for a response
- Trial balance and general ledger
- Supporting schedules and working papers
- Board of Directors and general member minutes
- Approved draft financial statements
- Letter of management representation
9) Reference your documents and files against the auditor’s list
When sending requested materials to the auditor, reference the titles of these documents to the index in the auditors list. For example, if the Trial Balance was the third item on the auditors list of requested documents, the Excel file could be named “3-Trial Balance.” This will help keep things organized for everyone!
10) Use the approved budget
Check to make sure that the budget in the accounting system is the budget that was approved by the Board of Directors. Having several different budgets adds confusion and unnecessary time spent confirming the correct budget.