Key Takeaways
-
Well-organized financial documentation — including reconciliations, internal control narratives and year-end entries — sets the foundation for an efficient audit process.
-
Designating a central audit liaison and proactively requesting the Prepared by Client (PBC) list helps align expectations, streamline communication and reduce last-minute audit delays.
-
Tracking audit requests, maintaining timely communication and conducting post-audit reviews strengthen internal controls and improve future audit readiness.
As year-end approaches, many organizations are preparing for upcoming financial statement audits. Whether this is a first-time audit or a recurring annual event, proper planning and preparation can make the audit process much more effective and efficient for everyone involved. Here we share seven practical steps your team can take to ensure a seamless audit process.
1. Prepare and Review Documentation
Before the audit begins, ensure that your financial records and documentation are complete and up to date. Proper organization at this stage sets the foundation for an efficient audit. Here are some tips:
- Organize financial schedules: Gather reconciliations, trial balances, bank statements and general ledgers.
- Record all year-end entries: Ensure that all journal entries have been recorded to the trial balance so that the auditor has the most complete and accurate trial balance. Don’t wait until December to start booking adjustments — record entries throughout the year so the trial balance stays current.
- Review reconciliations: Verify that reconciliations align with the trial balance for completeness and accuracy. The auditor will inquire if it does not; this may result in additional time and effort spent by both management in investigating the differences and the audit team in testing the reconciliations in multiple instances.
- Update internal control documentation: Review your internal control narratives so that the auditor can have an enhanced and updated understanding of your financial processes and evaluate key controls over significant transaction cycles. The auditor will want to understand your internal processes (e.g., billing, payroll and purchasing) and who is responsible for approvals, reconciliations and oversight.
- Understanding the entity and its operations: Expect the auditor to ask for background information about how your business runs — including your organizational structure, main products or services, revenue streams, key customers and suppliers and any major changes during the year.
- Have other key documents ready: Items to have available include board of directors minutes, significant agreements entered into during the year and tax filings for the auditor.
- Expect extra effort for a first-year audit: The auditors will need to learn your systems, request extensive documentation and reconcile opening balances. The first audit always feels painful, but it lays the groundwork for smoother audits ahead.
2. Assign a Main Audit Contact
Designate an individual within your organization who will be the primary contact to engage with the auditors and who has access and authority to gather the requested information. Having one central point of contact helps to prevent miscommunication and keeps things organized for both management and the audit engagement team.
3. Clarify Audit Requirements
Meet with the auditor to discuss and agree on timelines, deadlines and deliverables for the financial statements in advance.
Ask your auditor for a “Prepared by Client” (PBC) request list early on so that your team can gather the required information for the audit. Getting this list early allows your team to gather documents ahead of time, avoiding last-minute rushes when the audit team is performing its fieldwork and testing procedures.
4. Prepare Your Team
Inform the departments that will be involved in the upcoming audit (e.g., accounting and finance, human resources, operations, information technology and legal). Ensure they understand what their role and responsibilities will be so that they are ready to assist when needed.
5. Organize and Provide Access to Workpapers
Whether your audit is remote or on-site, make sure information is easy to find. If the team is in a virtual setting, ensure that the documents are organized and clearly labeled for the auditor to easily locate requested information. Keep documents in a secure location, such as a portal with access for a limited group of individuals. If on-site, provide a suitable workspace with internet access and sufficient space that would provide confidentiality of your organization’s documentation.
6. Stay on Top of Requests During the Audit
Once the audit is underway, maintaining organization and open communication is key to keeping the process on track.
- Track requests: Maintain a clear record of what has been submitted, what is still pending and what remains outstanding.
- Communicate promptly and frequently: Respond to auditor inquiries timely and accurately. Additionally, arrange frequent communications, such as daily or semi-weekly meetings with the audit team.
- Be proactive: Provide the requested information as soon as it is available to help keep the audit process moving along.
7. Review and Learn From the Results
Review the draft audit report, financial statements and management letter. Address any deficiencies or recommendations identified during the audit by the engagement team.
Schedule a closing meeting with your auditor to discuss the audit results and plan for improvements in future years. Use this opportunity to enhance the effectiveness of your financial controls and improve next year’s audit process.
Preparation Leads to a Smoother Audit
An audit does not have to be stressful. Preparing in advance helps reduce disruption to your daily operations and ensures your audit runs efficiently. With proper organization, clear communication and proactive planning, you can make your upcoming audit a seamless process.
Contact Us
For more information about preparing for your audit, please contact your PKF O’Connor Davies client service team or either of the following:
Ioanna Vavasis, CPA
Partner
ivavasis@pkfod.com | 646.699.2861
Maya Zadova
Supervisor
mzadova@pkfod.com | 646.699.2901