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In that context, an audit is a process through which
a CPA renders an opinion regarding whether your company’s financial
statements accurately represent (a) its financial condition at a given
point in time and (b) the result of its operations during a specified
period.
While there’s no denying the expense and
inconvenience that audits represent, there are two critical steps that
you can take to reduce costs and minimize the disruption to your business:
- Develop a cooperative relationship with your CPA firm
- Get your financial and business records in order.
Developing a cooperative relationship
Unlike an IRS audit, the process of auditing your
financial statements should not be an adversarial one. If your staff and
the auditors can work together smoothly, you will save money, the audit
will be completed more quickly, and the transaction that created the need
for the audit can move forward.
Here’s what you can do to help:
Explain to your people the purpose of the audit
and the importance of it proceeding quickly and efficiently. Urge them to
cooperate fully with the auditors.
Select an individual with authority to be the
primary contact with the auditors. This will
minimize duplications and omissions and promote consistency and
coordination.
Provide a suitable work place
for the auditors to use when they are working on site.
Before the auditors begin their work, arrange a
meeting in which they and your people can
get acquainted and develop rapport. This meeting should also include a
discussion of timelines, the information that the auditors will need, and
who will be responsible for what and by what date.
Ask the auditors to provide you with a list of
schedules or work papers they will need from
your records. Thoroughness at this step will maximize efficiency and hold
down the audit costs.
Bringing your records up to date
Have everything ready for your auditors to review on
the day they start their work. Providing information in a piece-meal
fashion will only slow down the process.
Needed information will vary from audit to audit,
but you should count on providing the following:
- General ledger, up to date through the end of the
period covered by the audit
- Trial balance
- All bank statements, accounts receivable,
inventory and other subsidiary accounts reconciled to the general
ledger
- Schedule of aged accounts receivable
- Schedule of priced inventories
- Schedule of fixed assets and depreciation taken
on them
- Schedule of prepaid expenses
- Schedules of loans, trade payables and other
liabilities reconciled with the lenders’ and creditors’ records
- Schedules of all other accrued liabilities (for
example, accrued vacation and sick time for all employees)
- Corporate minute book and stock certificate book
- Lease agreements, loan covenants and notes of all
lenders
- In addition, all original source documentation,
such as canceled checks, bank statements, vendors’ invoices, sales
agreements, insurance policies, etc., should be available to the
auditors.
Conclusion
Your goals at all stages of the audit process —
from selecting the audit firm to updating of your financial records —
should be to achieve a quick result at the lowest possible cost. Achieving
those goals depends to a large extent on how prepared you and your company
are, with respect to both attitude and preparation.
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