Posted by Jim McClaflin, EA, NTPI Fellow

Preparing for Your Annual Audit

Preparing for Your Annual Audit

Most businesses, especially corporations, have to schedule an annual audit to review their financial records and systems to be sure that the company is in compliance with current accounting methods. This audit is a tool that can be effective in making necessary changes to keep your business accounting on track. Working with a tax professional or accountant, such as Jim McClaflin, EA in Grimes, IA, who can assist you in preparing for your annual audit. So why is it necessary to prepare for this important annual event?


Reasons to be Prepared


While an annual audit may seem to be a stressful experience, working with your auditors you can determine areas where your company may need to make changes to strengthen your accounting procedures. It not only verifies your systems and processes; an audit also checks the accuracy of your accounting to protect your business against fraud. Thus, this is a resource that can assist your business to improve and grow.


So preparing for your audit can assist your auditors to find ways to improve the efficiency of your business and at the same time, reduce the number of errors within your bookkeeping. An audit is really an investment in your business and a chance for your books to be evaluated, as well as your procedures.


How to Prepare for an Audit


The auditor will typically provide you a list of documentation that you will need to provide based on the priorities that you want to be reviewed during your audit. There will also be a timeframe that you will need to provide those items. It is best to agree to a timeframe that gives your staff the time to gather the necessary items, while at the same time keeping up with their daily tasks. After all, you do not want your administrative tasks to fall behind during the auditing process.


You will also need to create an auditor file where you can track all the correspondence between you and the auditor. This can also be helpful to make sure that you track any changes made to your processes and procedures, or any particular forms.


Your bookkeeper will also need to make sure that they are reconciling all the detail to the general ledger account prior to the auditor’s arrival. Then you should request any templates from the auditor to put information into the format that will work for the auditor. Deadlines for financial statement production and other information from the auditor should also be discussed.


What Will the Auditor Request

 

Auditors will typically evaluate your financial statements and provide conclusions based on those financial statements. Therefore, they will need to have evidence of your financial numbers. Essentially, they need you to explain various actual to budget expenses, as well as any prior year variances. The auditor may also request information about any changes to your company’s management, operations, technology, personnel, and any economic or industry developments that may have impacted your business and its operations.


At the same time, you want to be candid with your auditor. They may point out accounting practices that are questionable, or potential fraud risks that might be part of your current bookkeeping methods. These findings can help you to find out what needs to be strengthen within your bookkeeping, but what you are doing right. In addition, take this opportunity to ask questions about areas where you might need to add some checks and balances to make your bookkeeping even more accurate.


The conclusions of your auditor will help you to determine that your financial statements are sound and free of any deficiencies. An unqualified statement from your auditor will contain language that will indicate the financial statements are accurate materially and at the same time conform with accounting principles generally accepted.


However, an auditor can also issue a qualified opinion, which means that you might not have completely followed the accounting principles generally accepted, but that the information is otherwise accurate. Yet if your information and departures from the accounting principles generally accepted are significant, then the auditor may issue an adverse opinion.


These findings can assist you in making changes to your accounting and bookkeeping to keep your business growing and improving its methods. As a result, you can keep pace with current bookkeeping practices.

Jim McClaflin, EA, NTPI Fellow
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