It is that time of the year again when you have to prepare for your company’s annual financial statement audit. Here are some tips to help the audit go smoother:
- Make sure that bank reconciliations for all bank accounts are up to date and that the balances per these reconciliations agree to your financial statements. Investigate any unusual transactions that occurred during the year and resolve all open issues. Bring all unusual transactions to the attention of the auditor.
- Prepare the accounts receivable aging report and reconcile the totals to the general ledger. Investigate any differences. Resolve any discrepancies that have been noted by customers and make adjustments for any disputed amounts. Bring any troubled accounts to the auditors attention so they can address the issues.
- For property and equipment, prepare a detailed schedule that includes all assets that were purchased during the year and all assets that were sold or disposed of during the year. The auditor may request copies of purchase invoices for all purchases. For the dispositions you may be asked to provide the auditor with the sales agreements. Make sure any gain or loss on dispositions have been recorded.
- Determine the portion of the cost of insurance, property taxes and other similar items that relate to the next year instead of the current year. You will be asked to provide a detailed schedule of your calculations to the auditors so they can verify your analysis of these prepaid expenses.
- For all accrued liabilities such as accrued payroll, payroll taxes, vacation pay and sick leave you will have to calculate the amount that is owed as of the end of the year. You may have to obtain information from the payroll department to assist you with the calculations. The auditor will need a copy of your calculations for their testing.
- You should draft a memorandum documenting the accounting department’s internal control procedures. This memorandum will be provided to the auditor. The auditor will be interviewing you and your accounting staff regarding adherence to the internal control procedures on a day to day basis.
In addition, if there were any unusual or difficult transactions that occurred during the year, they should be discussed with the auditor up front so he/she can address and resolve the accounting treatment early, preventing unwanted delays in the wrap up stages of the audit. If you prepare in advance for the audit and provide this information to the auditor up front it will make the audit go smoother.
For more information contact LSL CPAs 714.672.0022.
