5 Tips to Help You Head Into Your Audit With Structure & Confidence
A comprehensive financial statement audit is an incredibly valuable resource for a small business, ensuring all of its financial numbers are squared up, providing stakeholders with additional confidence in the organization and helping to determine the future direction of the entire company. However, this process can be quite the undertaking without proper preparation. We are here to help guide you through the procedure with 5 pre-audit tips.
1) Know the Differences Between the 4 Basic Financial Statements:
- Income Statement: An index of the business’ expenses, revenues & profits/losses generated during a particular reporting period.
- Balance Sheet: An index of all assets, liabilities & equity of the business as of the reporting date, providing important information about the capitalization and liquidability of a company.
- Statement of Cash Flows: A report consisting of cash inflows & outflows occurred during a particular reporting period, providing benchmarking & comparison information to the income statement.
- Statement of Retained Earnings: A statement presenting all changes in equity during a particular reporting period, including the sale/repurchase of stock, dividend payments, & changes caused by reported profits or losses.
2) Choose A Primary Point of Contact
When it comes to getting your company’s accounting in order, it is quite easy to have “too many chefs in the kitchen.” Establish an esteemed member of your accounting team to become the official liaison between your company and the external small business auditor.
3) Reconcile Accounts & Equity Changes in Accounts
It is absolutely imperative that you reconcile all significant accounts, which may include accounts receivable, accounts payable, inventory and accrued business expenses. Be sure to have support and evidence for all reconciled items. To minimize potential errors in calculation, have another trusted person in the accounting department check for discrepancies,
4) Evaluate & Improve Internal Controls
Minimize risk of financial misstatements and fraud by mending any gaps in your current internal controls. Internal controls gaps may include:
- Inadequate documentation/records
- Lack of separation of duties
- Job roles/responsibilities not clearly defined
- Lack of physical security of business assets & resources
- Lack of business oversight & review
These deficiencies not only pose potential issues for your business’ financial future, but they can also put a spoke in the wheel of the audit. Proactively patching these gaps helps ensure a much smoother process.
Need assistance with improving your internal controls? Our SOC Audit team can assist!
5) Compile Necessary Documents
Much like filing your personal taxes, having all of the necessary forms and documents ready before you start will ensure an easier procedure. Here’s a list of the documents you should have compiled before your financial statement audit:
- General Ledger/Working Trial Balance for the fiscal year
- Internal financial statements
- Employee handbook & Accounting Policies/Procedures manual
- Equity certificates
- Bank notes, lease agreements & security contracts
- Transaction memos, reports & documentation
- Board of Directors notes/minutes
- Documentation for all checks received
- Documentation for all bills paid
*This is not a comprehensive checklist, however it will give you a solid foundation as you prepare for your financial statement audit.