This will give you some insight to get you on track to get the reporting you need to run your business. Not all Companies need an audit but it is good to know what the standards are for proper books and records to support your balances and transactions.
There are two Key Responsibilities of Management:
to Prepare the accurate Financial Statements and Footnote Disclosures, and
to be Prepared for your Audit
1. Can my auditor prepare my financial statements?
Your auditor cannot prepare your support schedules, financial statements or footnotes as too much assistance could impair independence.
Management is responsible for the preparation and fair presentation of your financial statements in accordance with accounting principles generally accepted (GAAP) in the United States of America. This includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
When your accounting staff is swamped with daily work, it will still be cost-effective to bring in some outside help for your audit preparation. Completing your Auditor Request List will bring peace of mind and a sense of control over your audit and your business.
2. What will the auditor request and how will they use my information?
An Audit Request List is also called the Prepared by Client, or Provided by Client (PBC) List. It is a list of schedules and spreadsheets that your auditing firm expects you to provide prior to the start of audit fieldwork. The information provided is then used during the audit to conduct testing.
The PBC List has many requests which are usually grouped to match your balance sheet accounts, then revenue and expense accounts, followed by cash flow. You are providing support for your general ledger account balances. Also requested will be general items like organization charts, significant material contracts, fixed asset listing with depreciation, loan covenant calculations showing you are meeting the loan requirements, among others.
Once you get the PBC list, work on the items and have them ready before the start of the audit. Your staff should be free to respond to auditor requests during the fieldwork, not working on list items they should have had done. The quicker your staff responds, the shorter the audit, the lower the fees.
As an ex-auditor, I can say that most are really good people. The auditors are not out to get you. They do need to follow standards. Preparation and Communication with your staff and your auditors are key.
3. Can this be done ahead of time?
Yes, reviewing your Trial Balance, supporting your account balances, and drafting your financial statements well in advance of your audit will allow your company to:
- Avoid surprises by reviewing transactions and reconciling accounts so you can find and make any needed corrections.
- Allow you to get the most from your auditors’ expertise by allowing them to focus on the analysis of data.
- Set expectations on both sides of the audit and open the lines of communication between you and your auditor.
Also, if you have never had an audit before, they will need to validate “opening” balances for your balance sheet accounts. This can be time-consuming. They will also request documentation for internal controls and systems.
4. What is my best approach?
Be realistic in assessing your needs. If you are way behind, it is definitely more cost effective to hire folks with lower billing rates to come in and help with clean-up. We will do a solid assessment of your accounts and figure out the best approach so you will be able to support as well as explain your balances.
We will walk through your trial balance to ensure you can explain the logic of the entries and show support for your balances. For each balance sheet account, you should have a schedule ready that ties to the balance.
Cash: support the cash balance with your bank statement and reconciliation;
Accounts Receivable: generate an aging report to show that all balances are collectable with a reasonable reserve; you will explain how the reserve was calculated and all uncollected invoices over 90 days old;
Inventory: current inventory list with results of year end physical count.
Keep going down each Balance Sheet account, one by one, to make sure each one ties to a schedule and all the line items are still valid. For any accounts that need a supporting schedule, we will create one.
Even with everything provided on the PBC list, the auditors will request additional support and explanations during the audit fieldwork …. and you will be ready!
Want to know more of what I have to offer your company? Just click on the tabs above, call or text me at 321-961-0164, or email me at KathyEmersonCPA@gmail.com