A Good Audit Experience, Part I

Within our group here, we have many years of experience being external financial statement auditors and many years working in non-profit accounting, preparing financial statements, being audited, and conducting internal audits.  Seeing things from both sides of the table, we thought we’d offer some insights into working with auditors and not for profits, in order for both sides to have a good audit experience.  I’ve broken this up into two posts, to make it a bit more digestible.

Tips for the NFP accounting department (the client)

  1. Don’t fear audits.  When working as an auditor, I would often get the reaction from clients that we were someone to be feared and cautious around.  Auditors are there to do a job that you have hired them for.  Most of them are friendly, outgoing, fun-loving 20-somethings (and looking younger by the day).  There are no tricks and auditors will generally give you ample opportunity to explain yourself.  Be friendly and build good relationships with your auditors.
  2. See the auditors as partners.  Auditors have access to accounting resources, often well beyond what is available at a typical not-for-profit.  For instance, auditors visit several organizations throughout the year and therefore see the way that many orgs approach the same thing.  Additionally, they are backed by the other employees and partners of the audit firm who often have combined decades of experiences.  Many audit firms have members that are on FASB committees or other working groups, are presenting at conferences and teaching CPE.  The combined knowledge of the auditors is great.  Use this available resource to shore up your accounting practices, and interpret and apply new accounting standards.
  3. Be pro-active in communicating with your auditors. Stop by; see if they have any questions.  Schedule regular status meetings.  Bring issues to them. This may seem counter intuitive, but it builds trust and ensures any issues which arise are resolved quickly and don’t spin out of control.
  4. Be sure of your documentation and understanding.  The financial statements are yours, the organization’s.  Make sure that you understand the financial statements and therefore any changes that the auditors propose.  Also, much audit work is based on the documentation provided to the auditors.  When designing or evaluating your internal processes, make sure that each process and each transaction is well documented so that there will be an audit trail to follow.  An easy to follow audit trail will likely result in fewer questions from the auditors and answering questions will be easier.
  5. Provide what they need.  Auditors generally want the audit to be done as quickly as you do.  Since the audit is dependent upon information that you provide, the timeliness of the audit often depends on how quickly and fully the client provides information requested.  To make this easier, obtain the PBC or Audit Request List from the auditor at least a couple months ahead of the audit.  Review the list and assign tasks to applicable people in your departments.  Finally, have the documentation ready for the auditors when they arrive on site.  Additionally, if there are known samples that the auditors will be choosing, provide the listings that they will choose from in advance, so that you can have the sample documentation ready when they arrive.  Ask the auditors if there is anything else you can provide in advance.
  6. Own the project management and timelines. (You will notice that this is also in the auditor’s tips). It is in both parties’ interest to create and stick to an efficient audit schedule. With both sides managing the timeline, due dates are easier to keep.  Schedule the audit well before the auditors are to arrive (> six months).  Plan dates that they will be onsite and determine the date that you will issue.
  7. Feel free to push back.  Sometimes, the auditors will request something that was not planned, that would require a large amount of work to prepare, or seems out of line with the audit.  If you have a legitimate concern with an audit request, feel free to push back in a cooperative manner.  Explain your position, why you think the request is unnecessary, and ask the auditors what they are trying to achieve.  When you know what they are trying to achieve, you can often find an alternative that would be more useful.  Additionally, during a time when the audit is not occurring, schedule time to meet with the auditors to go over the Request List and suggest changes as necessary.  The audit will still have to occur, and the auditors will need to do their necessary procedures, but take the opportunity to make sure the audit goes well for both parties.
  8. Don’t take it personally. The auditors are not auditing you personally.  While you may be involved in key transactions, or in audit findings, it is not a mark against you.  The auditors are doing their job, working through procedures, and are not attempting to comment on anyone personally.
  9. Keep up to date.  Accounting rules are constantly changing so keeping up to date on changes and standards can seem daunting.  However, there are many resources available.  Most major CPA firms provide webcasts and CPE trainings that are often free to attend.  The AICPA publishes yearly audit and accounting guides and industry updates that can be purchased from their website.  Keeping up to date on issues will allow you to respond effectively and efficiently.

(Tomorrow, tips for the external auditors)


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