Dan Montgomery, CPA and Senior Assurance Associate at TD&T, explains what an audit entails and why audits are important. With more than ten years of experience, Dan specializes in audits of nonprofits, governmental entities and employee benefit plans. Dan is a member of the American Institute of Certified Public Accountants and the Iowa Society of CPAs.
Let’s face it, preparing for and going through an audit is usually not an enjoyable experience. It disrupts your already full workload and the auditor’s requests can sometimes be overwhelming. However, if simple steps are taken to prepare for the engagement, an audit does not have to be a painful experience.
Preparing Throughout the Year
Effectively preparing for an audit is done from day one of your fiscal year, and should be implemented into your monthly accounting procedures. By following the bulleted items below, you can rest assured that at the end of your fiscal year you are already halfway there in preparing for an audit.
- Maintain adequate documentation for all accounting transactions throughout the year.
- Review your internal control procedures and ensure they are followed throughout the year.
- Maintain a file of new or amended contracts, agreements and correspondence with oversight agencies.
- Read and understand provisions of grant agreements and determine your compliance with those provisions.
- Contact the auditor throughout the year with questions on accounting or reporting issues.
Now that your fiscal year has come and gone, it’s time to make those final year-end adjusting entries before the audit begins. If you need assistance, consider contracting with the audit firm, or another accounting firm, to complete this at a bookkeeping rate. Throughout my time as an auditor, I have found that the most effective method of exchanging information is through the use of a binder or electronic file folder that contains the following:
- Auditor’s data request (identifying who is responsible for the item and where the information is located)
- Financial Statements
- Trial Balance
- Account reconciliations for all asset, liability, and equity accounts
- Supporting statements
- Spreadsheets and memos explaining internal calculations, estimates and/or
- Any other items on the auditor’s list.
The End Result
If followed, these preparatory steps will help the audit go more efficiently, which results in a more pleasant audit experience and a lower cost. Contact us for assistance with your next audit. We look forward to working with you!