In today's fast-paced business world, transparency, financial accuracy, and trustworthiness are paramount. Preparing for an audit is more than just checking a box for compliance.
Internal and external stakeholders have more confidence in a business that is well-prepared for an audit, as it indicates transparency and reliability. Audit readiness also ensures that an organization's financial information is accurate and up to date.
Each year brings changes and new challenges to your financial statement audit. Perhaps you have changed auditors this year, experienced turnover in your accounting personnel, or even underwent a system implementation.
Your business’ audit readiness could also be affected by acquisitions or divestitures, business segment additions or changes, significant revenue fluctuations, new revenue streams, and even required remediation from the prior year's findings.
It’s important to reflect on the changes to your business and the potential impact on your audit readiness. A prepared business is likelier to complete the audit process efficiently and within the allocated budget.
Your business's internal policies and procedures are set up to guide how your organization works. Often, these procedures are poorly documented, not updated, or even non-existent.
Start preparing for your audit by standardizing your policies across the entire business. This will ensure consistency throughout your organization and start your audit on the right foot.
Take time to review your business’ trial balance. You’ll need to identify material and high-risk account balances across your financial statements.
Revisit your prior year audits to remind yourself of the focus areas and recommended improvements, then make sure they’ve been addressed. For example, have you reconciled all necessary accounts with the appropriate level of oversight and approval throughout the year?
Perhaps you’ve added or modified your chart of accounts this year; have you cross-mapped the changes for auditors to be able to understand the changes?
Your business should review overarching accounting standards such as ASC 842 (lease accounting), ASC 606 (revenue recognition), and ASC 805 (purchase accounting for acquisitions) to confirm compliance. This is best done through regular reviews and consultation with experts.
Most businesses have leases, but many are still unaware of the impact of ASC 842.
When preparing for an audit, consider ASC 842 and how your business presents its lease(s) on the balance sheet.
Revenue recognition standards have changed drastically in the past five years. When preparing for an audit, your business must determine if you comply with ASC 606.
If you were a pre-revenue company now earning revenue, are you prepared for the influx of inquiries, supporting memos, and accounting support regarding revenue recognition?
Accounting for acquisitions may seem straightforward, but this isn’t the case when preparing for an audit.
For example, many acquired businesses don’t maintain GAAP financial statements. When preparing for an audit, your business will need to ensure the accuracy of those books from day one.
Another example is supporting the fair market value of certain acquired assets. Not having answers to auditor questions related to acquisitions may cause delays and significant audit adjustments.
Beginning the audit process for the first time can be daunting. Businesses often struggle with understanding audit requirements, as they’re unsure what the auditors are looking for.
Other businesses going through the audit process for the first time require assistance preparing their work papers and supporting documentation. It isn’t easy to establish the necessary protocols to complete an audit for first-timers.
Maybe it’s your first time doing an audit with a Big 4 accounting firm or a large national firm. Coming from a smaller-shop auditor, the rigor of a larger auditor is often greater than what you may be used to.
As such, proper planning and support during the audit are paramount to a successful audit. An important aspect of audit readiness is your accounting team’s competence in the documentation presented to ensure the auditors gain confidence in you and your team.
The landscape of accounting standards isn’t static but rather ever-changing. When preparing for an audit, your business must determine if the changes apply to your organization.
Then, establish processes to meet these new requirements or change existing ones to keep up with the standards.
Often, companies think of this after the fact and must go back to post-adjusting entries with appropriate support. This is time-consuming, with the potential to make errors.
Complex transactions require special attention and often need more than just strategy. Your business shouldn’t navigate them alone.
Here are some complex transactions to consider when preparing for your audit:
Small businesses find it taxing to manage daily operations with the demands of an audit. Partnering with a firm is essential for these businesses to take some of that burden off their plate.
Audit readiness is an ongoing process. It involves enhancing transparency, strengthening internal controls, and continuously updating reporting mechanisms.
Many businesses choose to work with an audit readiness partner. Whether you’re a first-timer or an established business going through complex transactions, an audit readiness partner can provide value you may not have in-house.
At Clearview Group, our team of CPAs, former auditors, and former Controllers and CFOs has invaluable audit expertise. We understand the nuances of auditor and business needs while managing expectations during the audit to help smooth the communication and documentation delivery throughout the entire engagement.
As your audit readiness partner, we’ll streamline processes, automate repetitive tasks, and enhance your internal controls. Every business is unique, so we’ll offer solutions tailored to your business’s specific needs.
Being prepared for an audit is overwhelming for any business. Readiness not only ensures compliance but also reinforces the trust and confidence of stakeholders. Regular preparation and expert guidance can make the audit process seamless and efficient.
Talk to our experts for a tailored approach to prepare your business for its next audit.
We are a full-service management consulting and CPA firm covering all aspects of audit, compliance, risk management, accounting, finance, tax, IT risk, and more. Just let us know what you need help with and an expert will be in touch!
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