4 Best Practices to Ensure a Smooth Audit Experience
Many companies do not relish the thought of their respective year-end audits. Some may even equate the experience to a trip to the dentist for a root canal. However, the annual audit can be a pain-free, insightful and beneficial experience if done right.
The following are some of the best practices to ensure a smooth audit experience:
1. Choose the right CPA
A good CPA is invaluable. It’s not the prolific U.S. GAAP storyteller or pundit that is going to serve you well, but the CPA who knows how to creatively meet your financial statement reporting needs while staying within the confines of U.S. GAAP. This type of CPA will become your true adviser in both financial reporting and tax matters. In short, this relationship will be the one you want to call first not last when dealing with current or proposed operating issues and their financial reporting and tax impact.
2. Planning, planning, planning
The real estate world’s motto for a successful return on investment is location, location, location! The same concept holds true for a financial statement audit. It’s planning, planning, planning! If you want to ensure that the audit goes smoothly, you need to plan ahead. Way ahead! In fact, audit planning should occur year-round with regular communication between management and your auditors to ensure that all parties are up to speed with current company operational issues and how to address them, as well as new accounting standards, or new schools of thought on current accounting issues and how they apply to your company. The ideal situation in the mortgage banking world is to start year-end planning by the end of summer. So, if you have not started the planning of your year-end audit yet, stop reading and call your auditor now!
3. Establish an audit timeline
The third key to audit success is establishing an audit timeline during planning. The timeline is just as much for management as for the auditors. The timeline points to consider are as follows:
- - Schedule of deliverables to auditors for both interim and year-end fieldwork
- - Interim field work date and wrap-up
- - Year end field work date and wrap-up
- - Financial statement draft date to management
- - Issuance date by auditors
Once these dates are set, hold everyone’s feet to the fire to accomplish the established task. If you need encouragement because the rigors of every other management responsibility are also clamoring for your attention, remember the old audit proverb: “The road to audit hell is paved with good intentions.”
4. Tackle the big issues early
One of the key problems that makes everyone’s lives miserable is not identifying major accounting issues or new financial statement disclosures early. How many times have you been in a situation where the auditor comes up with an issue literally days before issuing the audit? It’s a nightmare that no one wants to live through, but auditors almost always give bad news on these occasions!
To eliminate this problem, ensure that during planning you talk through your trial balance with the auditors, discuss new operating issues that have arisen and how you account for them. Also, discuss any operating issues you anticipate in the future and how they should be accounted for. Above all, be transparent in your communication with your auditors. You would be surprised at how often your auditors can solve problems in a way that meets your financial reporting objectives and still complies with U.S. GAAP if the auditors know all the facts.
These are the keys to audit nirvana! They are all straightforward and easy to follow. When used properly, everyone will have a happy beginning to the New Year. Good luck!
About the Author
Henry S. Chavez
Senior Audit Manager
About Spiegel Accountancy Corp.
Spiegel Accountancy Corp. is a professional accounting firm based in the San Francisco Bay Area with a national practice specializing in mortgage banking, private equity funds in lending and real estate, and small-to-mid sized businesses. Our commitment is to being a strategic, innovative and responsive partner, distinguishing us from other accounting firms. We offer assurance, accounting, tax compliance, tax planning and consultation services. To learn more, please visit www.spiegelcorp.com.
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