Taking the Pain out of the Audit
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Here’s to you, not-for-profit organizations with a summer year-end. While December 31 finance and accounting teams are looking forward to sandals and summertime, you’re busy preparing for your annual external audit. You’re reviewing that seemingly daunting PBC request/client assistance list from your external auditor, making sure those last accruals get recorded and ticking and tying those reconciliations. Furthermore, the highly anticipated Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, is finally here (for an overview of ASU 2016-14, see our recent BKD Thoughtware® article).
Rather than dreading the audit process, organizations should view it as a way to affirm that their management team, governing body and donors have accurate and complete information to make decisions that help further their mission. Let’s examine how your organization can make the audit a meaningful and painless annual exercise. Then take a look at how BKD professionals can help improve your audit experience.
Did your organization implement new accounting software or face IT issues? Did you receive a grant this year or a contribution with unique conditions? Did your organization hold a fundraiser for the first time? Did you introduce new alternative investments in the portfolio? Talk to your auditor throughout the year. Send over agreements/documents with your conclusion on the appropriate accounting treatment and get buy-in. You can add your auditor to your board/committee minutes distribution listing, too.
During the audit, consider having weekly standing meetings to walk through the open items list and address questions that have come up throughout the week. It may be beneficial to have these meetings right up until the audit’s issuance. Frequent communication with your auditor can help alleviate unwarranted stress and surprises during the year-end fieldwork.
In addition, schedule an exit meeting to debrief after each audit while it’s still fresh. Take notes, and then reference those notes as you prepare for the next audit.
2. Set Expectations
Was a deliverable deadline missed because PBC item X wasn’t delivered until the Tuesday before the deadline, but it wasn’t requested by the auditor until the Monday before the deadline? Proper planning and an excellent relationship with your accounting firm, which includes proper levels of communication and accountability, can help your organization avoid issues like this.
When’s the audit committee/board meeting? When does the board book need to be sent out? Do you need to walk through it with the audit committee chair before sending it to the committee at large? Sit down and work backward from these meetings with your auditor and collectively establish deadlines. Reconfirm throughout the audit process (perhaps at the weekly standing meeting you facilitate) that everything is still on track for on-time delivery.
3. Review Last Year’s Audit
Revisit, and learn from, last year’s audit process. This includes reviewing oral and written communications from last year, as well as any adjustments. Keep the following questions in mind:
- What went well?
- What could go better?
- Were there adjustments noted (whether recorded or just proposed)?
- What was the nature of those entries?
- Was an adjustment indicative of a control deficiency?
- What was the auditor’s recommendation last year to remediate this?
- What was, or can be, done to help ensure the adjustment doesn’t recur this year?
- Were there other control deficiencies noted by the auditor that didn’t result in an adjustment last year?
- How were these items responded to?
4. When in Doubt, Ask for the Auditor’s Objective
Have you or your team been tasked with pulling a ridiculous amount of paper (or electronic) support only to find out after that there was a single report that would’ve sufficed for the auditor?
Often this happens when there’s a new request. As an auditee, know that the auditor does have to enlist elements of unpredictability—it’s in the standards, and standards do change. Audits won’t always look the same each year. In fact, they shouldn’t. Asking your auditor what the ultimate objective is enables you to take a “help me, help you” approach, which in this case equates to a “help you, help me” outcome. Of course, you have a better understanding of what you can provide to support the objective, so let your auditor know; they’ll appreciate it.
Also, organizations and audit firms use different names for different reports. You should talk to each other to confirm what’s needed.
Think of the audit process as a project. Using simple project management skills as noted above can help ensure you and your auditors are sailing into the audit committee meeting with hopefully good audit results to deliver. If you’re dreading a possible audit, contact BKD to learn how we can help the audit process go more smoothly.