The annual audit casts a pall over accounting departments. We accountants don't like the gloomy atmosphere any more than you do, so here are some ways to keep control over your business throughout the year and cut your audit fees.
There's one key principle: Keep your books in order all year long. Here are 13 related steps that can reduce trauma, preserve morale, and save money:
1. Appoint a member of your staff as "audit coordinator." This person serves all year, screening and funneling questions to the auditor. He reduces confusion and cuts fees by eliminating duplicate, unnecessary questions.
2. Be sure that there are documents to prove the occurrence of all significant transactions. They will enable the auditor to establish the general accuracy of your records.
3. Keep a close watch on your systems of internal control. The auditor must base his judgment of how extensively to review your records on his evaluation of your controls, including data processing, accounting, and financial reporting systems.
4. During the year, consult your auditor about major transactions to determine accounting, auditing, and tax consequences. Doing so will prevent surprises during the audit.
5. Ask your auditor if part of the examination can be conducted before year-end. If so, the period of turmoil can be shortened.
6. Before year-end, meet with the auditor to discuss:
* problems with last year's audit and ways to prevent them from recurring;
* new developments in the company's business;
* new accounting standards;
* significant transactions and peculiar problems such as changes in pension and profit-sharing plans.
7. Explain the purpose of the audit to your staff. Note that the audit takes place primarily to give management, bankers, and other important outsiders an expert's opinion on the firm's financial position, not to uncover fraud. Assure employees that they are safe in answering the auditors' questions, and that without their cooperation the company will waste time and money.
8. Prepare job descriptions for your accounting staff and flow charts or other descriptions of your internal controls. They will save the auditor time and give your accounting department valuable tools for future training.
9. Reconcile all general ledger accounts and make any necessary adjustments so that they will agree with such supporting detail as your list of customer accounts receivable.
10. Prepare workpapers and schedules for the auditor in advance of the audit. These may be the most important money-savers of all, since they dramatically reduce the work the auditor must do. The auditor can tell you what he needs, but it's likely to include:
* your detailed analysis of the balances in the general ledger accounts;
* drafts of letters to be sent by the auditor to customers, suppliers, bankers, etc., confirming elements of their relationships with you;
* drafts of your financial statements and income tax returns.
11. Prepare inventory instructions for staff and hold a preinventory meeting with them. Discuss the inventory procedures with your auditor.
12. Give the auditor space so that he can spread out the cumbersome stacks of materials he must review. A dark cubbyhole is not usually the best place to put someone you're paying $25 to $75 an hour.
13.Finally, don't allow the audit to begin until your records are up to date and all information needed is available. It's wasteful for the auditor to be "on hold" because the right information isn't there. If the audit has begun and delays are likely, let your auditor know so you can work out a new schedule.