Preparing for an Audit
Updated: Sep 3, 2019
By: James Linton, Controller External
Audit time can be very stressful on an organization and its employees. Keeping the following three tips in mind will help to alleviate the pressures arising as a result of an organization’s audit.
1. Keeping Your Procedures Manual Up-to-Date
One of the first things an auditing team will do prior to conducting fieldwork will be
to review an organization’s procedures. This includes the step-by-step processes for routine financial tasks including timeliness of deposits, records added to the general ledger, approvals required for purchases and payments, and reviews of monthly closings.
Instead of trying to work backwards, be prepared by having this information ready before you are audited. Every organization should have an edited and revised procedures manual including all of the typical financial tasks you complete on a regular basis.
2. Performing Monthly/Quarterly Reconciliations
Ultimately, auditors need to review your finances and make sure that your numbers
balance. One of the best ways to prepare for a yearly audit is by performing your
own internal reconciliations. It is much easier to find inaccuracies on a monthly basis rather than on a yearly basis.
You will also want to reconcile your inventory and/or fixed assets. This is a major step in an auditor’s review, and should be done regularly throughout the year.
3. Having an Organized Filing System
Throughout the fieldwork portion of an audit, the auditing team will ask for samples for testing. Rather than scrambling to find the documents they ask for, your organization should have a well-documented and organized filing system to make it easy to locate files. The more organized you can be, the better. This will also help your organization during your routine reconciliations.
Organizations that are not prepared for an audit often are the ones with the most issues. Without proper documentation, organization, and a clearly defined process, an organization runs an increased risk that errors or irregularities can occur. For any organization, this could result in errors in tax, financial or regulatory reporting or in lapses in internal controls.
• Errors in tax reporting can lead to assessments of penalties and interest.
• Errors in financial reporting can create issues with owners, lenders and others relying on those statements and may give rise to legal actions.
• Errors in regulatory reporting and lapses in internal control can give rise to questioned and disallowed costs.
• Lapses in internal control also create the conditions where fraud can occur and remain undetected.
Audits cause headaches for a number of organizations... don't let it happen to you! If your organization is in need of assistance, let Donnelly-Boland help. We have extensive experience helping businesses and nonprofit organizations navigate through audits!