“Are your accounts reconciled? Are the capital assets activities booked? Are the bank reconciliations up to date? Have the accruals been made?”
The list goes on and on. As more and more accounting pronouncements come out, the list of things to do to get ready for audit continues to lengthen, adding more work and stress to many finance departments that already may be feeling the pain of diminished workforces due to the Great Resignation or workforces that are less effective in a remote working environment. The hard truth: processes to prepare for audit that may have worked (or marginally worked) in the past probably need to be looked at and reevaluated to see if they are still effective. There are many ways to get ready for the upcoming audit season, but this article will share three of the most effective methods top finance departments are doing to be prepared.
#1: Start thinking about the audit now
There is a temptation to put it off because the audit doesn’t start until Fall but waiting on it will only add to the scramble prior to the audit. One of the best ways to start thinking about the audit now is to have pre-audit meetings with your auditors, and discuss what both you and they have identified as problem areas in the past, ways to overcome the problems, and what successful resolution of the issue looks like. Work with the auditors to develop detailed timelines for the audits, including milestones like the provision of PBC lists to your department, when the PBCs are due to the auditors, when audit entrance, status, and exit conferences will be, and dates for financial statement drafts. Having such a detailed audit plan will work wonders to hold your department (and the auditors!) accountable to meeting deadlines and facilitating a smooth audit and financial statement issuance.
#2: Identify the key internal processes and procedures needed to close your books
If you already have an existing closing checklist, that is awesome, but still review it against the latest accounting guidance to see if it is up-to-date or in need of revision. As an auditor, I often review clients’ closing checklists, and many of them go years without ever being reviewed or updated. Again, coordinate with your auditors about new accounting pronouncements and see what they will be looking for to make sure you capture the information. Some keys to an outstanding closing checklist include: a comprehensive list of tasks to be completed, due dates for completion, who the task is assigned to, and a review by management to certify task completion. Ideally, the closing checklist should be fully accomplished 30 days prior to the audit so the department can have the auditors’ PBC requests ready two weeks prior to the audit. Advance planning and review of trial balances and documents go a very long way to an efficient and effective audit!
#3: Be realistic about your department’s capabilities
A serious side-effect of the Covid-19 pandemic has been that people who have been experiencing burnout at their jobs really aren’t putting up with it. People who burn out, leave. People are reevaluating their career paths. People are retiring. Vacancies are one of the top issues facing organizations right now, and filling those vacancies has been a major challenge, not only in local government, but across most industries. As the workload continues to grow because of new accounting requirements, but the workforce continues to shrink, more and more stress is being put on your employees, and meeting deadlines for the closing process or providing PBCs or financial statement draft reviews, becomes more challenging and less feasible. To ease the pain, you can always look at your audit dates, and coordinate with your auditors a later date to start the audit to give you more time to prepare. This is certainly an option, but then the audit just gets pushed further into the holiday season, and nobody really enjoys that. Two of the best ways to ease the pain is to consider automation or outsourcing. Look into solutions to automate routine, mundane tasks to free up your existing staff to do higher level work and be utilized more effectively. Outsourcing tasks like bank reconciliations or pre-audit prep work to consultant CPA firms is another great way to stay on-target for audit while reducing stress on your staff. CPA firms are often auditors themselves so they know what your auditors will be looking for and can “pre-audit” your books beforehand and provide high quality documentation to your auditors.
In Summary
It all starts with open communication with your auditors and setting goals with them, then taking a look at your closing process and making sure it covers everything, and then finally evaluating your own capabilities to accomplish that closing process in a timely and effective manner. Don’t be hesitant about new things like automation or outsourcing, as these powerful options will go a long way to making your and your staffs’ lives easier! Good luck this upcoming audit season, and as always, the experts at LSL CPAs are always ready to help you achieve a successful year-end close and audit!
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