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How to Prepare for an Audit or Review
It’s two days before the AGM papers have to be sent out and the audit still hasn’t been signed off..…
Hopefully you have not been in this situation. Unfortunately though, many associations feel frustrated at the time required to complete an audit or review
of their financial statements. Like so many things, the difference between a smooth audit process and a last minute rush frequently comes down to preparation.
The following are a few steps that can be performed to assist in a timely audit process.
1)Discuss with your auditor what they will require
Frequently, an audit or review is delayed when waiting for additional information to be obtained. Of course there are situations where additional requirements will become necessary as the assignment progresses, but auditors will know of the basic information you will need to make available to them. Every attempt should be made to have this information ready at the start of the audit.
2)Agree a timeline with the auditor, and ensure both parties stick to it.
Some typical milestones are:
•Date by which the accounts are available to the auditor
•Date of on-site work (if required)
•Date for draft audited accounts to be sent to the finance director/board
•Date for signing accounts and audit report
•Date of AGM
3)Ensure your financial statements are ready
Review the statement of income and expenditure (profit and loss account) and statement of financial position (balance sheet). Some basic checks are:
•Have all bank balances been reconciled to the bank statements? Ensure that bank fees and interest are taken up, particularly on term deposits that are not used every day.
•Ensure that there are no items in ‘Suspense’ or ‘Balancing’ accounts. These accounts are sometimes used when the accountant is unsure how to treat an item. It is best to raise these issues with your auditor when they occur or, at the latest, when preparing the financial statements, so that these can be dealt with in a timely fashion.
•Have all creditors and accruals been entered? Consider invoices received around the year end. When are they dated? If they relate to services, were these performed prior to year end?
4)Perform your own analytical review procedures
In both a review and an audit, the auditor will generally perform analytical procedures, asking about variances to the prior year’s results. By performing this yourself prior to the audit, not only will you be aware of any potential errors to the accounts, but you will save time in responding to the auditor’s queries. For example:
•Check expenditure by line item. Where there is an expense in the prior year, but not in the current year, consider whether there should have been a similar amount in the current year. Has it been allocated elsewhere? Or should an accrual be raised?
•If an income or expenditure line item is higher in the current year, do you know why? Was the additional income or expenditure expected due to a change in the organisation?
•Consider if membership fees are reasonable based on the annual fees and number of members in your data base.
5)Prepare a copy of all minutes of meeting for the auditor
Throughout the year, file an extra paper version of minutes of meetings, or keep an electronic version, ready to send to the auditor.
6)Discuss delays with your auditor
At the end of the audit or review, consider whether you were happy with the timeliness of the audit. Have a frank discussion with your auditor to identify where the issues occurred. Obtain a commitment from the auditor to improve on timeliness next year, and be open to suggested solutions, including changing the timing of the audit.
ABOUT THE AUTHOR
Susan Barbour is an audit principal at Baumgartners who has a wide range of expertise in accounting and audit issues.
Baumgartners is a firm of Chartered Accountants and strategic business advisors who believe business is about successful relationships. Baumgartners has offices in Cotham Road, Kew and Eagle Street, Brisbane.