Once year end hits, the clock starts ticking. Most audits required by regulatory agencies or grantors, impose a deadline for completion of the audit. The most stringent deadline is 90 days from year end. Other organizations may have the annual board meeting as the deadline. Whatever the case, there are procedures you can perform to expedite the audit and facilitate the meeting of the deadline.
Preparing the Trial Balance
Once the accounting file or trial balance has been turned over to the auditors, changes to the general ledger should not be made except by adjusting journal entry by both you and the auditor. Review any prior year adjusting journal entries received from the auditor to ensure all entries were made. Verify the retained earnings at year end match the prior year audit’s retained earnings balance. Investigate and correct any differences.
Establish and follow period end closing procedures. The financial close should include:
o Prepare year end bank reconciliations
o Record payroll/compensated absences accruals
o Record accounts payable
o Clear old payables
o Adjust inventory to agree to physical count
o Review prepaid expense for adjustments required
o Final analysis of accounts receivable, close out any amounts remaining from the prior year
o Adjust grants
o Review leases and prepare accounting entries as appropriate
o Reconcile inter-fund transactions
o Clear deferred revenue
o Clear deposits in transit
o Review due to / due from accounts
o Clear suspense accounts
o Post year end dividends and interest earned
o Post year end interest payable
o Record fixed asset purchases and deletions
o Post indirect cost allocations
o Prior period corrections
o Record commitments
o Consider unique items required at year end
o Close inactive accounts
Financial Statement Preparation
Many organizations rely on the auditors to prepare the financial statements and the notes to the financial statements. The organization should attempt to prepare the financial statements to eliminate the possible finding that the organization lacks personnel with the skills to prepare the financial statements. The organization preparing the financial statements also eliminates any independence issues for the auditor. The auditor may assist in the preparation and advise management; however, the responsibility for all decisions lies with the organizations management.
o Reconcile all balance sheet items to the supporting documentation
o Identify required disclosures
o Prepare notes to the financial statements
Organize for the Audit
Review any items needed list received in prior years from the auditor. Consider unusual occurrences during the past year for communications with the auditor. Communicate any changes in management and identify the target completion date for the audit.
o Document internal controls implemented
o Address prior year audit findings
o Inform auditor of any changes in accounting methods, any significant issues or compliance issues
o Gather all year end statements and support for balance sheet items
o Prepare confirmations
o Prepare grant revenue schedule and reconcile to the trial balance
o Prepare accounts payable and receivable listing
Being prepared for the audit before it starts will help ensure the audit goes smoothly and deadlines are met. Planning and preparing also provides efficiencies, reducing audit fees.