04
Apr
12

A Good Audit Experience, Part II

Yesterday, I discussed some tips for NFP accounting departments for having a good audit experiences.  Today I wanted to give some tips to the external auditors, for working through their audits with clients.

Tips for the external auditors

  1. Clearly communicate issues and errors immediately.  Few things are more frustrating for a client then to have a problem, issue, or error reported late in the audit process.  If these issues are raised early, the client can manage expectations, and often can provide additional information/context which would mitigate the error.
  2. Be courteous of your client’s time.  Accounting departments at NFPs are generally short staffed.  Additionally, the latter half of the calendar year (when many audits take place) is the busiest time for many NFPs.  Understand that your clients are busy and have limited time available.  Clearly communicate your time needs to your clients.  Schedule interviews and walkthroughs ahead of time.
  3. Be proactive.  Schedule audit dates well in advance.  Send out request lists in advance.  Offer things to the client that they can get done early.  Keep the client informed of new accounting issues that you know will affect them.
  4. Be open and responsive.  The financial statements are those of the organization, and the organization knows how they run best, better than anyone.  Be willing to take the time and listen to the client’s explanations and expectations.  Give clients a chance to respond to errors, adjustment, and suggested changes.
  5. Know the business.  Each organization is unique.  Not for profits span a variety of industries, from hospitals, to universities, to relief and development organizations.  Get to know not just your client’s industry, but how they run their business.  This will greatly increase your ability to have a successful relationship with your client, identify audit and business risks, and add the most value to them.  This will enable you to exercise good judgment when evaluating the client, rather than simply applying stock audit procedures.
  6. Be creative.  You may not be able to get exactly what you want, or perform an audit procedure exactly the way the canned procedures states, especially if it is a new request.  Each client is unique.  New systems to track and report take time to put into place.  But if you think creatively, you can often identify information which provides good indicators to answer your questions and complete your procedures.
  7. Add value.  Audits can often seem to clients to be a hassle and a waste of time.  Change this attitude by adding value to the audit.  Partner with the organization, encourage them to discuss issues with you, provide access to CPE.  Concentrate on the important things.  Clients are generally not going to what to deal with small, trivial issues or “reviewer’s preference.”  When presenting issues to the client, ensure its importance; clearly explain the effect on the financial statements and the audit.
  8. Reversing entries ≠ fraud.  On most accounting systems, if an error is made to an entry, the only way to correct it is to post a reversing entry, then the correct entry.  Accounting systems are unforgiving.  Because of this, reversing journal entries are normal occurrences and generally not an indication of fraud.  Additionally, month end accrual entries are typically automatically reversed the next day.
  9. Communicate regularly.  Hold regular status meetings with your client when the audit is taking place.  During the off-season, keep in touch with your client about the audit, and new accounting issues that need to be addressed.
  10. Own the project management and timelines. (You will notice that this is also in the client’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 you are to arrive at the client site (> six months).  Plan dates that you will be onsite and in the office.  Help the client determine the date that you will issue.  Plan for and schedule time for manager, partner and concurring reviews.

An audit can be a good experience for both sides.  We hope these tips help your next audit be a good experience for all.

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