How to Prepare for an Annual Audit
You may dread the annual audit because it is a big and potentially expensive and disruptive undertaking for you and your employees. You may even completely dread the thought of it. However, an annual audit is the only true way to ensure your financials are in order and hopefully prove the strength of your business for the coming year. But you need to be prepared. Your proactive management of finances and assets will help your auditor do his job better and give you a heightened understanding of your organization. Working together with the auditor will help uncover ways to improve efficiencies and eliminate errors.
A successful audit starts far before the audit even occurs.
An audit doesn’t have to be a nightmare. You can put operational procedures in place so each arm of the business is ready once the end of the year rolls around. Here are some ways your organization can be more prepared this year:
- View the auditor as a valuable resource, rather than the enemy: Auditors will review your company’s financial processes and statement to make sure the numbers are accurate. From there, she can identify problem areas, opportunities for growth and improvement. Not to mention, it protects your business against fraud. All these measures lead to more effective management in the future.
- Keep a designated “auditor” file: Use this file to keep records of any correspondence with regulatory agencies, copies of new or changed documentation about your fixed assets, debt agreements, leasing arrangements, legal matters, transactions, and technology modifications that have been made during the course of the year.
- Reconcile accounts: All equipment lists, bank accounts, accounts receivable, accounts payable, and accounts receivable need to be reconciled and added to the general ledger.
Once you have this year’s numbers in place, it’s just as important to compare them to last year’s audit figures. This step helps to identify any differences between the two and if they are accounted for.
- Track assets: All companies, whether private and public, are required to keep accurate asset reports for a variety of reasons. Government, a school, or nonprofit organization classifies and tracks assets by funding source or grant. Incorrect data could translate into the organization losing its grant or other funding opportunities.
Further, all companies depend on their fixed assets in some way. For example, employees may need mobile devices to do their jobs efficiently. If these important assets are lost or missing employee productivity will tank.
Related Article: Why Are My Inventory Audits Always Incorrect?To make the annual audit less painful, perform smaller asset audits throughout the year. This makes it easier to keep track of fixed assets and less likely that the annual audit will be out of whack. An inaccurate asset audit hurts the validity of your transactions, thus negatively impacting the company’s balance sheet and reputation.
- Know what the auditor needs: Don’t let an annual audit strike you with fear. Your auditors are there to offer an overall opinion of your company’s broad financial statements. Yes, they will cover quite a bit of ground and will undoubtedly ask for a lot of information to form said opinion. Know they only request items that your business should already have on hand as part of its everyday accounting processes. So, if you reconcile accounts, keep detailed documentation, and accurately manage assets, an asset audit should not be as big a headache as you might anticipate. An auditor will review organizational data, including:
- Existence or occurrence
- Rights and obligations
- Valuation and allocation
- Presentation and disclosure
- Be prepared to discuss the results of the year based on your expectations going into the year.
- You may be asked about changes in governance, management, ownership, operations, industry developments, etc.
- Keep records consistent: Various department employees should agree upon a coherent process to keep all information clear and in a format acceptable to the auditor.
- Deadlines should be set: Let various department managers know when reports on fixed assets and financial records are due. And stick to it. When all the paperwork is done and ready on time, it’ll ensure the audit happen smoothly and in a timely manner.
An asset management system streamlines the end-of-year audit
As your business grows, the more items you and your employees need to do the work necessary for everyday operations. From standard office furniture like desks, conference tables, and chairs – to important accounting software, computers, and mobile devices, do you know what assets you have in-house? If not, then move “asset audit” to the top of your to-do list.
Especially as much-needed technology like mobile computers and tablets become smaller, the more likely it will disappear. And when you constantly need to replace those items, your financials will be a big mess at the end of the year. Conversely, regular audits of fixed assets ensure your records are accurate and financial balance sheets will line up. Not to mention, you’ll prevent loss, and those important resources necessary for daily functionality in your working environment will always be available.
Putting these audit best practices into place will be helpful to your company. But it could also bury you in paperwork, leaving you with a myriad of numbers to make sense of. If you’re like 55 percent of small businesses, you track assets with a manual method like spreadsheets or even pen and paper, or worse yet, you don’t track assets at all. As a result, annual financials reported to the auditor may not even be accurate. And that cancels out all the efforts you made throughout the year.
Whatever type of business you run, asset tracking increases efficiencies and saves money. By tracking your company’s assets on paper, and going through a multi-step process to transfer it to a computer program, you will always be afraid that one costly human clerical error could cause your audit to not add up.
By implementing an asset management system, your company will decrease the amount of time spent tracking your inventory. And as far as audits are concerned, you will become 100 percent certain company records are accurate when the auditor comes to call.
An annual audit is a big undertaking for any company. But if you take on the appropriate mindset and steps, it doesn’t have to overtake your company in the process.
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