How to Adequately Prepare for an Audit

Monday, April 21, 2014

How to Adequately Prepare for an Audit

Do you find the audit process to be a downright burden? Businesses and entities often find themselves unprepared for an audit. Here are some tips on how to prepare for an audit.

Remember, the results of the audit are your responsibility. As such, you should be preparing all year long, not just during audit season. Here are a few audit-focused questions that you should ask yourself throughout the year:

  • Have I diagnosed my business's internal control environment and made improvements to strengthen controls? Many of you are strapped with everyday responsibilities and have little time for this. If this is the case, consider engaging the help of your financial advisor who can help analyze your operations, detect deficiencies in internal controls or areas vulnerable to fraud, and offer proactive solutions before starting the audit.
  • How is the communication between my business's departments? Insufficient communication could limit the finance department's ability to identify all transactions and events that affect the financial statements.
  • Have I familiarized myself with state and federal laws that regulate how my business operates and have I established procedures designed to promote compliance?
  • What steps have I taken to address management letter issues and/or findings reported in the previous year? Issues do not correct themselves! Prepare yourself for the upcoming audit by making these corrections so that you're not burdened with them year after year.

Your Relationship with your Auditor

How is your relationship with your auditor? Are you able to reach out to him/her with questions or concerns? Contact your auditor to determine how an issue might affect your business. Be proactive.

Make sure you're keeping in touch with your auditor during the off-season and communicating any "hot topic" issues so that your auditor can properly prepare for the situation, and potentially help you avoid management comments or findings. Use your auditor as an ally, not an adversary.

Work with your auditor to determine an appropriate timetable so that both parties are on the same page. An effective timetable nails down what and when reports and schedules are due and lays out expectations for both your business and your auditor.

A timetable is only effective if all parties involved in the audit process are aware of and committed to the due dates. Make sure to communicate the timetable throughout your organization to reduce surprises, and then, stick to it. In addition, get your auditor's request list well in advance of the audit, even if you have to chase them down!

For many businesses, an audit is inevitable and inconvenient. However, with preparation, you could reduce the burden on your business, drastically reduce the duration of the audit and sustain the relationship with your auditor.

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