You have just come to the end of your fiscal year. Now it’s time to get ready for the audit. For many people this is the time they dread. It’s inconvenient, the auditors are nosy and ask too many questions, or they are worried about what they might find. We’ve all felt this way at one time or another but with good preparation the audit can go smoothly.
The first thing you need to clarify is the role of the auditor coming to your business. Generally they are there to audit your financial statements not to do all the work to prepare them. You should have audit working papers and draft statements ready when they arrive unless you have agreed to something else beforehand. You should also specify if you would like them to prepare your charity tax return which they will do for an extra fee of course.
Your auditor will give you a list of what they require before they come on site. Make sure you have these items ready as it will save you time during the on site work. You can expect that what they asked for the previous year audit, they will need again for the current year. It’s a good idea to start getting things in order before the end of the year. For example they will want to see minutes of board meetings. You can set up a folder at the beginning of the year for this and add them as they are ready. You know they will ask to see copies of some invoices so make sure your filing is up to date and organized.
If you want to reduce some of the workload at the end of year, preparing reconciliations on a monthly or at least quarterly basis will be very beneficial. I am not just talking about the bank reconciliation which should be done very month, but the other balance sheet accounts. Very often so much focus is on the income statement revenue and expense accounts the balance sheets accounts are neglected. Regular reconciliations will pick up omissions and errors earlier. Prepaid expenses set up at the end of the previous year are sometime not moved to expenses in the current year until someone notices it months later. Accrued payables or liabilities is another account that can have old items appearing that should have been cleared in the first month of the year.
If you have capital assets in your organization you are sure to be asked for documentation on them. Keep a file with the invoices for any capital assets you purchase. Have your policy on how you will depreciate assets for your organization available. If you have leased equipment you should keep a file with the lease agreement along with the amortization schedule. If you have investments keep copies of the investment statements and any other documentation on income earned, capital gains or losses, and investment management fees.
The auditors will be asking questions about each of the lines on the audited statements. You can save yourself and the auditors time by having explanations prepared ahead of their arrival. Basically you should be able to explain what each line on the statement represents and why the amount has increased or decreased from the previous year. These are the types of questions which can take a long time getting answers when the auditor is on site, so it makes much more sense to do this work before they arrive.
In summary you can anticipate what the auditor is going to want and ask for by looking back at to the previous year. Also, if there is something you are really hoping they won’t ask about you can be sue they will. Sort out the issues before they arrive. Most importantly, you need to remember they the auditor is working for you. Don’t be afraid to ask questions if you are unsure about something. You are the client. They are providing a service to you.