Are You Prepared For Your Annual Audits?
Yes, the calendar is about to turn again. Year-end is synonymous with the joys of the holidays and night capped by year-end close and the financial statement audit. Most people fear an audit, but there is no reason to fear an audit or the audit team, after all the vast majority of audit opinions are clean. Whether the nature of your operations calls for a continuous yearlong audit cycle or once a year, there are several ways to make the process flow seamlessly.
The foundation for any successful relationship is communication, and it is no different with your auditors. Communicate with your auditors about new or unusual transactions that may affect the financial statements and/or footnote disclosures. Examples of this could be: new/modified debt, office space, or other significant contracts, contributions/distributions of securities, change in business plan, regulatory correspondence, potential/threatened litigation against the firm, etc.
Establishing clear expectations with your auditors is another way to have the audit run smoothly. Have a meeting with the audit team in advance of year-end to establish key engagement milestones. For example, agree upon reasonable dates (based on the nature of your operations) regarding requested support being available for the audit team, any on-site visits, initial drafts of the financial statements, final delivery of the audit opinion, and any formal exit meeting presentations, if desired. Just as facilitating the audit isn’t your day-to-day job, your audit team also has other clients and demands on their time. Delays and modifications of the plan are often inevitable for many reasons, but they are not a reason to derail an engagement or a relationship, if communication is open and timely.
Management should appoint a primary contact to facilitate the audit process/requests. This individual should be able to coordinate with the necessary internal/external departments. Similarly, there should be an identified point of contact on the audit team that will be able to provide management with status updates as needed. This will minimize duplications and omissions, and promote consistency and coordination.
Lastly, it is important to understand that the financial statements are management’s not the auditors. The auditor expresses an opinion on whether the financial statements are reasonably stated in accordance with accounting standards. If the presentation and disclosures meet the requirements and are not misleading, management has flexibility in conveying the results of its operations and communications with its stakeholders. If your desired disclosures are not considered “industry standard” work with your audit team to determine what is reasonable.
The process of establishing credibility with your stakeholders doesn’t have to be, and shouldn’t be, a dreaded exercise. Communicate early and often with your auditor, and who knows, maybe the year-end audit will become grouped in with one of the joyous aspects of the holiday season.