Financial audits are designed to analytically study your processes and transactions to make sure all your financial systems are in order. Developing good practices for an annual small organization financial audit can be nerve-wracking, exhausting, and sometimes even expensive. However, with planning and preparation, you will find that you will fly through the process and discover critical insight about your organization. At the end of a small organization audit, you should feel more confident about your finances, identify opportunities for improvement, and be better prepared for a future audit.
1. Streamline Your Organization – Develop short-term and long-term plans for your finances and ask your accountant to think about your finances in those terms.
2. Set a Schedule for the Audit – Not a schedule from 8 a.m.-5 p.m., but a schedule of important dates. When will the fieldwork portion of the audit begin? When do files need to be compiled and handed over? When will the preparation of preliminary tax numbers be finished? When doing financial statements and tax returns need to be delivered? This way everyone involved will know from the beginning if there are any conflicts.
3. Be Aware of Recent Changes – CPA auditing groups will be completely up-to-date on any new GAAP standards and analyze your financials accordingly. Know which changes have recently been added and how they may affect your daily work.
4. Look on the Bright Side – Having visitors on-premise, disrupting your and your staff’s daily duties by questioning your decisions could seem to be a nuisance for the whole office. Hold a meeting with your staff to explain the point of your financial audit, encourage them to be helpful and pleasant and remind them of the fact the auditors are experts in what they do and can recommend ways to strengthen organization controls and reduce risks.
5. Choose a Liaison – Avoid duplication of work, copies, and effort by assigning a liaison from your financial department. The accounting firm will know whom to go to for assistance allowing most other workers to go about their normal duties.
6. Reconcile and Categorize Everything – The best way to manage this is to close accounts every month and avoid any discrepancies from the get-go. Know which items are allocated to which departments. Keep in mind that paid time off for your employees has to be officially tracked as well as differed rent; everything needs to be calculated accordingly for accounting purposes. Your monthly schedule should line up with your year-end balance. Make sure that your accrual accounting and reporting are on the same timeline to avoid time-consuming corrections.
7. Be Ready with Your Paper Trail – Consider putting together a binder of account balances and transitions for your auditors. If you’ve had a previous audit, look at which documents they previously requested and prepared. A good rule of thumb is to include things like bank and loan statements, contracts, leases, insurance policies, board meeting minutes, etc.
8. Ask About Preferred Preferences – When preparing your printed documents, think about your digital documents as well. Ask your CPA which type of file he or she would prefer to receive. Maybe PDF is easy to read but difficult to manipulate in spreadsheets.
9. Evaluate Your Processes – Personally take a look at the way your company is run. Who is in charge of what areas? What control policies are in place? How are job duties devised up among each department? Do the same with your financial statements. When the numbers don’t add up to you, they surely won’t add up when an auditor reviews them. If there is something that stands out to you as needing a different solution, take it upon yourself to address the issue before you select your auditors.
10. Be Prepared to Answer Questions – It is the auditor’s job to find financial inconsistencies and detect any fraudulent activities. Be open with the auditor about any difficulties you may have noticed or concerns that you have. As the leader of the organization, you also have the right to ask your own questions when you don’t know why schedules and documents are being requested.
Now just remember to relax. Once you’ve done the preparation work, remember to breathe. Each audit provides you with an opportunity to improve your organization. They will provide your company with valuable insight during the reporting phase and let you know of irregularities or recommendations for areas needing improvement.
A small organization’s financial audit is no small task. When you are inviting a CPA firm to conduct one for the first time with your company, understanding the purpose and the process making it much easier for everyone.
Our Insider Tip: Consider keeping a digital record of everything so that you can access any requested documents in an instant.
