Accounting Management Solutions, Inc presents

Transcription

1 Accounting Management Solutions, Inc presents This e-book is designed to present organizations of all sizes with valuable insight into the audit preparation process. A collection of helpful tips from audit preparation experts, it includes a range of audit preparation best practices, from how to begin the audit process to what specific financial documents should be collected and reviewed. Watermill Center 800 South Street, Suite 195 Waltham, MA

2 What s the difference between an audit and audit preparation? Audit preparation is important to your audit process. It corrects issues and alleviates concerns before the audit. It also collects and organizes the documents, materials and schedules necessary to the audit. An audit is an examination and verification of a company's accounting documents and supporting data by a certified public accountant (CPA) for the purpose of rendering an opinion as to their fairness, consistency, and conformity with generally accepted accounting (GAAP) practices. Why do I need to prepare for an audit? The annual audit can be an expensive undertaking, in terms of both your internal team s resources and your company's money. Proper audit preparation helps make your audit process more efficient, saving time and decreasing audit fees. An audit can be more of an investment than an expense if auditors are free to analyze and evaluate accounts and procedures, rather than searching for files and waiting while materials are assembled for them. An investment in professional audit preparation can deliver significant savings and peace of mind. Why can t my CPA help me prepare? Accountants and CPAs have different roles when it comes to audits. In today s Sarbanes-Oxley world (whether you are publically or privately held), your auditor cannot be involved in preparing the documents necessary to the audit itself.

3 It's best to identify and address key areas before audit schedules and plans are written in stone. Auditors and clients should get together as early as possible to talk through all of the issues and areas of concern that may affect the conduct of the audit (or the opinion). This includes significant corporate transactions and events, the applicability and impact of new accounting pronouncements, errors that have been made during the year and other possible bumps in the road. Early, open, and candid conversation can only have a positive influence on the quality and efficiency of the audit.

4 Getting all parties to agree on an audit schedule is a key step in audit preparation. An audit schedule will detail every aspect of an audit, everything from the preaudit planning to the final audit filings. It's helpful to have all individuals associated with the audit, including the Board of Directors, the finance committee, the audit committee, company staff, and the auditors themselves, to all agree on the audit schedule. It s also important to ensure that the audit time frame is fair.

5 Consider accounting issues discussed/uncovered in prior years. This includes looking at prior year audit adjustments and new regulation changes that need to be addressed in this year s audit. It s important to not only look at these potential issues but to also determine if you have the in-house expertise to resolve those issues accordingly. Examples of potential issues includes: A change in an accounting estimate A change in a business policy Interpretation of a prior year accounting practice (know what the current year impact will be and how to document & defend it).

6 It is important that the board minutes are reviewed by all necessary parties. Thoroughly examining the board minutes helps to avoid any last minute concerns or questions. Looking through the board minutes well in advance of the auditor sign-off gives individuals time to clear up any outstanding issues.

7 Reconciling all material balance sheet accounts, beginning with cash and working down through the rest of the balance sheet, has two advantages. Not only is this step necessary to get material balance sheet accounts in an audit-ready state, but the reconciliation of the balance sheet accounts also often leads to many adjusting entries. Examining and adjusting all material balance sheet accounts is a necessary step to take before the audit begins. This can be done through eleven months ended to make sure all the details and documentation are available. A one month catch up to meet yearend close will be much easier.

8 Gathering backup for all accruals for the period being audited, including the source document and all intermediary documents, is a useful step in audit preparation. This backup, whether an invoice, contract or otherwise, should be prepared in advance to provide the auditors with all the information that they will need. In addition, for all complex calculations, attaching all documentation to a paper copy of the calculation and properly cross referencing the amounts will also help the auditors.

9 Spot checking invoices that are over the capital acquisition threshold is another step in audit preparation. In spot checking invoices, it is important to make sure an item that should be capitalized is not being expensed.

10 Make an assessment of what accounts are material and what accounts have risk due to complexity of accounting. Companies can perform a 10 or 11 month analysis of accounts and be prepared to document and roll detail forward to year-end (because you know the auditors will look at it).

11 Having the policy and procedure manual, employee handbook, and approval matrix available provides the auditors with all the information they need to start to perform an audit. Auditors often ask for these documents and its helpful to prepare copies in advance of the audit for the auditor's use. It s also important to make sure that these policies and procedures are are accurate and up to date well in advance of the audit.

12 For significant or material accounts (i.e. inventory) do specific verifications throughout the year or just prior to yearend.

13 Above all, be ready to explain and support any significant changes from previous years. Following a consistent audit preparation process every year can help make audits easier.

14 About Accounting Management Solutions, Inc. Accounting Management Solutions, Inc. (AMS) is a leading resource for outsourced accounting and financial management services for New England and the metro New York area. We support public, private and nonprofit organizations of all sizes. AMS consultants boast an average of 20 plus years of relevant industry experience and are carefully selected for their expertise and ability to develop quick and effective solutions. After working with companies of all sizes in an array of industries, our consultants have compiled their industry best practices to share in this Audit Preparation e-book.

15 Massachusetts Office Watermill Center 800 South Street, Suite 195 Waltham, MA (781) New York Office 1501 Broadway- 12 th Floor New York, NY (212) Rhode Island Office One Richmond Square, Suite 124 C Providence, RI (866)