Are You Ready for Your Annual Audit
An audit may be stressful on staff, boards and volunteers, but needn't be. Let's look at tips to help prepare for an annual audit so it is as painless as possible.
Many small business, nonprofit organizations, governments, school districts and employee benefit plans are required to have an annual audit. An audit assesses the reliability of an organization’s financial information and evaluates its internal controls through a series of tests. It conveys information about an organization’s financial health by providing an independent auditor’s assurance to management that finances are recorded correctly in accordance with accounting standards. An audit may be stressful on staff, boards and volunteers, but needn’t be. Let’s look at tips to help prepare for an annual audit so it’s as painless as possible.
- Before the audit, consider having a planning meeting with the auditors to discuss significant events that happened during the year, review the listing of audit schedules and review your standard operating procedures including internal controls in place to safeguard the assets of the organization. The auditor is required to communicate with those charged with governance, typically the board of directors, prior to the start of the audit. This is generally accomplished through a letter inviting the board members to contact the auditor if they have any concerns, and through phone or in-person interviews.
- During the audit fieldwork, the auditor will review and test account balances, and may perform compliance testing if required by an outside source.
- After the audit fieldwork, the auditor will complete a draft of the financial statement, the Audit Related Communications letter and the Management Representation letter. The auditor may also present the audit results to the board of directors.
- Financial statements are the responsibility of an organization’s management and should be reviewed in draft form prior to issuing final audited financial statements.
- Year-end trial balance
- Lease, debt or grant agreements, and other agreements signed during the year
- Minutes of board of directors meetings
- Bank reconciliations and statements
- Accounts receivable and payable balances and aging schedules
- Fixed asset schedule including current year additions and deletions
- Analysis of significant revenues and expense accounts and changes in services or programs from the prior year
- Payroll expense reconciliations to payroll reports filed
- Detail of any restricted assets
- The Report of the Independent Certified Public Accountant will include the auditor’s opinion on the financial statements.
- The Management Representation Letter to the auditor states everything was provided by management of the organization to support the financial statement amounts and management answered all audit inquiries to the best of their knowledge. This is signed by the Chief Executive and Financial Officers and given to the auditor.
- The Audit Related Communications Letter includes the significant accounting policies, estimates in financial information, audit adjustments, any internal control deficiencies, and any operating efficiency recommendations.
- The organization may wish to respond to any internal control deficiencies with a corrective action plan prepared by management and approved by the board of the organization.