It’s that time of the year again — most
companies are gearing up for their year-end audit. Unexpected road bumps can derail the audit process and cause delays
in its completion, which can result in
audit fee overruns and important missed
deadlines.
Smart Business asked Jyoti Pai, CPA,
CA, manager at Tauber & Balser, P.C. in
the Forensic Accounting & Litigation
Services Group, about ways to prepare for
the inevitable audit process and some of
the setbacks that may come along with it.
What can management do to ensure that the
audit progresses smoothly?
Proactivity is key. Plan and put procedures in place to prevent kinks in the year-end closing and audit process, such as the
following:
- Agree on the audit timeline with the
auditors. Specifically, determine when the
fieldwork will be completed and when
you can expect to have the audit report in
hand. This should be documented in the
auditor’s engagement letter. - Ensure that the accounting staff is
aware of the audit timeline, the books are
closed on time and all necessary accounts
are reconciled and reviewed by the appropriate level of management. - Obtain a ‘Needs List’ from the auditors
in advance. Consider using a client portal
(Microsoft SharePoint or a similar application) to provide electronic schedules
and other documents requested by the
auditors. This will help to ensure that
audit schedules and documents are available at one central location, and all members of the audit engagement team can
access them at any time. Auditors can also
review the uploaded documents before
the start of fieldwork and alert you about
any additional items needed before they
arrive at your office. Authority to upload
documents to the portal should be
restricted to the CFO or an equivalent person to ensure that only schedules and
documents that have been reviewed and
approved by management are uploaded. - Ensure that the accounting staff responds promptly to the auditors’ requests.
- Check in with the audit manager
and/or audit partner to ensure that the
audit is progressing as planned. Schedule
regular status meetings with them to help
your management team remain aware of
any issues that need to be resolved or
delays that the auditors may be encountering. - Have management review the financial statements and related disclosures for
accuracy and to verify that they are presented in conformity with Generally
Accepted Accounting Principles (GAAP),
before they are handed over to the auditors. This will help avoid multiple revisions to the financial statements because
of errors noted by the auditors.
Ultimately, financial statements are the
responsibility of management, not the
auditors. - For public companies, consider hiring
an employee or engaging the services of a
consultant who specializes in the presentation of financial statements in accordance with GAAP, Public Company
Accounting Oversight Board and
Securities and Exchange Commission regulations and guidelines. - Review with the auditors at the end of
the audit any issues that they encountered and items that contributed to delays during the audit process. Ensure that these
items are addressed beforehand for the
next year’s audit.
What is the importance of the management
letter issued by the auditors?
A management letter is a written communication by the auditors to management and those charged with governance
that reports significant deficiencies and
material weaknesses identified in the
audit, in accordance with Statement on
Auditing Standards No. 112. Although the
auditor is not required to perform specific
procedures to identify deficiencies in
internal control or to express an opinion
on the effectiveness of the entity’s internal
control in the audit of financial statements, the auditor may become aware of
deficiencies in internal control during the
course of the audit. These deficiencies are
communicated to the audit committee or
to the board of directors, if no audit committee exists.
Understanding the deficiencies in internal control identified by the auditors can
provide an insight regarding the auditors’
perception of the effectiveness of internal
control implemented by management and
will allow management to put in place
additional procedures to strengthen controls and reduce opportunities for fraud. It
is important to set a timeline for remediation of any reported deficiencies.
An audit does not have to be a painful,
time-consuming process. By providing
all information and details requested by
the auditors in a timely manner and managing the audit process properly, you can
reduce the amount of time auditors
spend at your office. This will result in
significant cost savings and a more efficient audit.
JYOTI PAI, CPA, CA, is a manager at Tauber & Balser, P.C. in the
Forensic Accounting & Litigation Services Group with expertise
in the manufacturing, real estate and technology industries.
Jyoti’s expertise also includes litigation and accounting malpractice. Reach her at (404) 814-4908 or [email protected].