August 23, 2024
Oftentimes, the word “audit” can incite a feeling of dread and fear. An audit can be a big task to take on and can often cause stress for an auditee. But as they say, “if you stay ready, you don’t have to get ready.” To reduce stress levels and panic, there are a few steps that can be taken in advance to ensure you are prepared for when the auditors show up.
Knowledge is power! The more you know about what happened during the year, the less worried you will be when the auditors ask you questions. If there were any big changes during the year take note of it. Chances are the auditors are going to ask about it. In addition to notes related to financial information, make notes on things that happened in the organization such as any employee turnover, a spike in hiring, or potential project collaborations. The more information and transparent you can be, the smoother the audit will be and the lower the chance of delays in issuance.
New standards are released consistently, sometimes once a year. A good way to stay on top of them is to subscribe to newsletters and alerts from the FASB or AICPA. You can also subscribe to your auditor’s accounting firm, which typically can provide more insight into how new standards affect different industries. This will help you be prepared for when the auditors come and implement the new standard in your organization. Moreover, if a standard does not make sense, or if you are unsure it applies to your organization, you can reach out to the auditors and ask.
Throughout an audit, the auditors will request supporting documentation (whether in the form of checks, spreadsheet calculations, grant agreements, or invoices) for the numbers presented in the financial statements. Having all those files organized, whether it be digital or physical copies, will increase efficiencies during the audit. If you are unsure of what the auditors will need, you are welcome to reach out to the auditors in advance and ask for an initial request list.
If you do not have an accounting or finance background, communicating with the auditors can feel like talking in a foreign language. If what they are saying does not make sense, do not hesitate to ask for clarification. A good auditor will take the time to explain what they need. There is a chance you are already familiar with the item they are requesting, but not the auditor’s name for it.
As part of the audit, auditors are required to gain an understanding of the accounting procedures and controls. A good way to prepare for this is to develop a policies and procedures document that describes the controls in place. Granted, most nonprofit organizations don’t have a large, robust accounting staff to segregate duties, but there are steps that can be taken to ensure the financial records and assets are properly managed. One example is to have one person record transactions and another approve payments. Another is to hold regular board meetings to oversee financial information or have the Board of Directors monitor financial activity on a macro level. Regardless of the controls in place, it is also important to make sure that the controls are being documented. This is usually done through signatures or approvals in the meeting minutes.
An audit can be time consuming. As such, it is important to manage your time well. Reviewing your schedule and blocking out time to dedicate to the audit will improve time management and gives auditors specific times to discuss audit items with you. Additionally, as you are blocking out your schedule, if you feel that you don’t have enough time to fulfill auditor requests, it gives you time beforehand to delegate tasks to other staff or reschedule. This can reduce overall stress related to an audit.
There is nothing wrong with setting up meetings with the auditors to discuss the audit before it starts. A lunch or virtual meeting with the auditors can help clear up any concerns and lay out expectations for you and for them. When meeting with the auditors, you can ask questions regarding any of the above items or just get to know the auditors better.
Overall, as daunting as an audit can be, there are ways to make it less cumbersome. The steps above are just a few ways to help get ready for the audit. Find out more about Larson & Company's suite of services developed specifically to serve the needs of companies of all sizes in a wide range of industries.