Getting the Most Bang for Your Audit Bucks
Audits are great financial tools for financial institutions, bonding agencies, CFOs, and board of directors, but many organizations often fail to see their own audit as anything other than a necessary evil. When used properly, audits can and should be used by organizations to increase accountability, improve financial operations, and improve transparency. However, to achieve a successful year end audit for your company, you need to be prepared. Adequate preparation enables your auditor to provide you with a useful business tool for your organization, without totally disrupting your day to day business operations.
Preparing for and Surviving the Audit
- The most important place to start any audit is with the right frame of mind. Your attitude towards the audit directly affects your employees’ attitudes. An audit is a great burden on a company, especially for those within your company that must provide reports for auditors, answer questions, and continue to do their normal daily job responsibilities. It’s important that employees understand the importance of the audit, and how much their cooperation is needed to ensure a successful audit. All key company individuals should participate in the audit to provide relevant information and convey their expertise related to key audit areas.
- Audits should be viewed as a partnership between your company and your audit engagement team. At HLBGC, we want to partner with you to become your long-term trusted advisor by developing a good understanding of your business and your risks, and getting to know your company. Meeting with your HLBGC audit team engagement manager prior to year end helps us develop a good understanding of your business and the risks present in the daily running of your company. We are then able to audit the information as you see it from your company’s point of view.
- Before your audit, you should receive a Prepared by Client (“PBC”) list from your audit engagement manager. Take time to go through the list, making sure that all the items pertain to your organization, and that you understand exactly what you are being asked to provide. Don’t be afraid to inquire as to why a particular document is needed, or if another document could be substituted if you can more readily produce the needed information in a different format.
- Provide as much of the requested information to your audit manager as you can before the audit work begins. This allows your auditor to “hit the ground running.” Throughout the year, compile documents that you know your auditor will request, such as new loan documents, capital leases, and other pertinent business information. Prepare Internal Control narratives and forms in advance, and provide those to your auditor prior to the engagement. Consult your audit manager for guidance on what should be included in the narratives.
- Pay close attention to the timeline provided on the PBC list, and stick to the agreed upon schedule. If you are unable to provide the documents by the date requested, notify your manager in advance so that scheduling changes can be made if necessary. Making sure you and your audit team are on the same page avoids wasting everyone’s time.
The Audit’s Over…Now What?
- You should always try to have an internal follow-up meeting within a couple of weeks after the auditors leave the field. The process is still fresh in your mind, you know what went right during the audit, and you can address what went wrong. It’s a great time to talk about the audit results, and start thinking about next year so that everyone can begin to prepare. Provide your audit manger with any feedback that can make future audits run more smoothly, and allow him/her to serve you better.
- Don’t just throw your audited financial statements in your drawer. Review them with your accounting personnel, and discuss how your monthly internal financial statements can be improved to provide more timely and accurate business information. Pay close attention to the audit adjustments that were made as these can indicate areas needing improvement. Examine your business’s financial strengths and weaknesses, and discuss them with your key personnel to improve your operations.
- Take time to discuss the Management Letter your auditor will issue to you at the conclusion of the audit (see link below). When used properly, Management Letters can be an invaluable business tool.
- Update your auditor during the year if any significant changes occur in your business. Rely on your auditor to assist you with any new transactions or business acquisitions or disposals.
- By staying with the same firm year after year, you and your auditors develop good relationships, and a good team spirit naturally results from working together towards the same goal. The auditors train the clients, and the clients train the auditors. This results in improved efficiencies in future years that provide you and your employees with a better understanding of what the auditors are asking for, and helps us to learn better ways to get and interpret the information you provide, while giving you the attention your company needs and deserves.
- Once the audit is complete, you will receive a Management Letter , a valuable communication tool providing insight to your specific business and operational circumstances. Understanding this letter and how to use it is essential for operational improvements.