The Secret to a Successful Audit: Preparation
By Yoni Novak, Senior Accountant The CFO Squad LLC
What’s the key element to the entire audit process? Preparation.
An audit of any company’s books and records is a difficult and sometimes strenuous process, especially when it is a first time audit. There are documents to gather, schedules to prepare, and corrections to the books and records that need to be made. This can be an overwhelming scenario if not planned properly. Proper planning for a financial audit can significantly reduce the amount of time to complete, reduce stress on your accounting departments, and save the company money.
In my experience, I have seen companies rush into an audit for all sorts of reasons that vary from pressure to get funding; a merger or acquisition; looking to go public, and many more. All of these will quickly lead to the realization that there is a need to get the books and records in order.
For whichever reason you are engaging in the audit process, the path to a smooth and successful audit is through proper planning and preparation.
A first time audit can be a lengthy process. However without proper preparation, it can take two or three times longer, which translates to added costs and strain on limited accounting resources.
Here are SIX easy steps to be better prepared for an audit:
- Ensure all corporate documents are filed in one place and clearly labeled;
- Gather (or create) standard operating procedures for all the departments in the company including: revenue recognition; cash receipts and disbursements; Issuance of equity (options, warrants, common stock); payroll; and inventory (if applicable):
- Gather all debt agreements and ensure they are signed:
- Ensure all balance sheet accounts have supporting schedules:
- Ensure all of the company’s equity has supporting documentation, i.e. signed agreements; and
- Determine the main point of contact (POC) regarding correspondence with the auditors.
A strong point of contact for the audit is an invaluable resource; there is an incredible amount of work, time, and effort involved in the audit process for both the company and the audit firm. The individual corresponding with the auditors should be someone who can devote a substantial part of his/her day to the audit. This individual should have a clear understanding of the audit process and the requirements necessary to make this potentially strenuous experience an organized, smooth, and stress-free one.
In many cases, it makes most sense for an organization to outsource these steps to a 3rd party firm, that has the skills and best practice processes already in place. The CFO Squad for instance often facilitates these steps for clients with its staff of experienced accountants and former auditors from national accounting firms, and acts on behalf of their clients as the main POC for the auditor. This not only provides piece of mind to the company’s owners and its accounting staff, but because much of the financial reporting and documentation processes are automated, including the pre-audit steps, it can substantially lower the overall cost of the audit.
Engaging in an audit? Get a free consultation from the CFO Squad.