The decision to have a financial audit of your company is not an easy one. For one, there are costs associated with making your accounting records auditable yet they are key to having a successful and cost efficient audit. Here are some key factors to consider:
- Are the bank reconciliations up to date?
- Consider if all accounts receivable are collectible?
- Was the physical inventory (PI) performed successfully?
- Were the books and records updated properly as a result of the PI?
- Is inventory pricing up-to-date in the inventory system?
- How inventory is valued, First-In-First-Out (FIFO), Last-In-First-Out (LIFO), or Weighted Average?
- Are all deposits recorded on the books?
- Are there step rents in your lease agreements?
- Is there a complete listing of all owned assets and is there support for all assets acquired that are not fully depreciated?
- Have all of the balance sheet accounts been reconciled?
- Are the corporate minutes up-to-date?
- Is there a proper record of stock certificates, owners thereof, and the value of original consideration received for the stock issued?
- What exactly are your accounting policies and procedures?
- Is there proper segregation of duties, meaning that one person does not have access to: Custody of Assets (i.e. signatory on the bank); Authorization (i.e. approver of invoices); Record Keeping (i.e. ability to record the transactions in the books and records of the company, prepare reconciliations, etc.)?
- What basis of accounting will you use when reporting your transactions in the financial statements such as: Cash Basis, Tax Basis, SME Basis, and Generally Accepted Accounting Procedures (GAAP)?
Auditors will ask for a lot of documentation, support of transactions, question related party transactions and will challenge the way the books and records are maintained. Be prepared to be interrupted, to stay late into the evenings, and do NOT book a vacation the week the auditors are to start their audit. Plan accordingly for a successful audit.
Not being prepared could potentially double the audit costs if the auditors help to “clean-up” the books and records as part of their field work.
So what do you do when contemplating having an audit? I would recommend contacting us to help determine the condition of your accounting records to ensure there are sufficient audit trails to support auditors coming in and performing an audit. Hiring us or another CPA firm to get you audit ready may lower your overall audit cost and help prevent receiving a letter regarding weakness in internal control.
Have a question? Give me a call.