Nothing makes a CFO or controller happier than preparing for the year-end audit; right? Joking aside, the annual audit should provide a valuable opportunity for management to reflect on past performance and plan for the future. It should be a collaborative effort between management, the board of directors (as applicable) and the CPA firm.
With many banks still tightening their lending practices, some companies are being asked to have an audit for the first time and others, that might have only needed a review or compilation in past years, are now being required to have an audit. Whether you’re a newcomer to the audit process or have had an audit for years, there are steps you can take to make the process pleasant, efficient and cost-effective.
Audit cost reduction strategy
If you are not required by a third party to provide financial statements by a particular date, you may be able to reduce your audit costs by moving the engagement out of the first quarter of the calendar year. We have more flexibility in scheduling audits during the second and third quarters of the calendar year. You may even want to consider changing your year-end unless you have business reasons that necessitate a December year-end. If you’re interested in such a move, please consult your KraftCPAs advisor at (615) 242-7351.
As the Boy Scouts know, it’s best to be prepared. Meet with your auditors prior to year-end for a planning meeting and to bring the audit team up to date on any changes in operations, personnel, structure, or major transactions that have occurred since the previous audit. In many instances, the auditor can do some testing prior to year-end, which will help facilitate a quick turnaround. Turnaround time is particularly important when the company is required by the lender, board of directors, equity partner, or other third party to provide audited financial statements within 90 to 120 days after year-end. Also, completing the audit sooner may result in getting the company’s tax returns filed without having to extend.
During the planning phase, the audit team will provide you with a “prepared by client” (PBC) checklist. The checklist details documents and records that need to be ready when the auditors arrive for fieldwork. Take time to read through the list when you receive it and ask questions immediately if you are not exactly sure what is being requested. Having everything on the PBC list ready on day 1 of the audit will help prevent you from having to prepare requested schedules and simultaneously answer auditors’ questions about information you have already provided, while also attending to your day-to-day responsibilities — quite a stressful situation.
We typically suggest that you incorporate the completion of the PBC checklist as you perform your year-end closing. For example, when you complete your bank reconciliations, go ahead and pull the requested items for the audit. This step prevents having someone go back and pull all of this information again at a later date. In addition to saving time, clients may occasionally find that adjustments need to be made to certain reserves and/or accruals.
When we estimate fees for audit engagements, those fees are based on the assumption that the client’s books will be closed and that records will be in reasonable and auditable condition when we arrive. When a client is not prepared for the audit on the agreed-upon date, valuable time is lost and audit costs often increase because the team will be in the field longer than anticipated. Likewise, if assistance is needed to close the books and prepare journal entries, that time is not considered audit work and is billed as additional accounting services. Some companies that do not have the in-house resources to prepare financial statements and otherwise prepare for an audit, may wish to hire a contract accountant to assist with the process. We can recommend contractors to provide such assistance if needed.
The year-end audit, if embraced as a management tool and not an unpleasant requirement, can provide owners with valuable feedback and an excellent opportunity to pick the collective brain of KraftCPAs. Help us help you by preparing early for the audit, keeping us informed of changes throughout the year, and giving us feedback on areas where we can improve our service delivery. Working together with our clients, we can make the year-end audit a pleasant and valuable experience.