If you are the owner of any sort of for-profit organization, preparing for an audit can be quite stressful.
An audit is designed to objectively evaluate your firm’s financial position and confirm that your organization complies with all relevant laws. No matter what industry you may be in, an audit can have a tremendous impact on your company’s well-being.
Preparing for an audit might initially feel overwhelming. But by keeping these few simple tips in mind, your firm can be better positioned for long-term success.
Understand How an Audit Works
You may be surprised by how many CEOs and CFOs do not fully understand how an audit works. This can make the entire process much more difficult, unorganized and time consuming.
Doing things such as creating a specific audit plan, clearly defining audit objectives, and declaring everything that will be needed for the audit can help you avoid unexpected surprises.
You may also want to do things such as testing transactions to ensure absolute accuracy.
Consolidate Your Report
Consolidating the various pieces of information that are required in an audit can help your firm reduce the risk of redundancies or inaccurate information. Consolidation does not mean leaving out important details — it means striving to gather, organize and present data in the most efficient way possible.
To prepare for consolidation, your firm should begin by installing software designed for this specific purpose. Checking for formula errors, necessary capabilities (such as currency conversions) and other automated details will be very important leading up to the audit.
Organize Accounts Receivable
The accounts receivable category is one of the things auditors are most likely to take a close look at. Most auditors will be looking for several things.
When determining the collectibility of a given account, it is important to use a consistent set of criteria. Whether you determine this from historical patterns, adaptable formulas or any other legitimate method is something that will remain up to you. But be as consistent as you can possibly be.
Be Consistent When Recognizing Revenue
Recognizing revenue also requires a consistent set of criteria. Revenue streams affect both your income statement and balance sheet. Consequently, the way revenue is reported is one of the foremost concerns of a typical auditor.
There are many relevant variables in the world of revenue reporting. The timing of reported revenue streams is incredibly important. Though these reports require significant subjective decision-making, doing things such as creating a reliable methodology and installing audit-friendly software can be quite helpful.
Pay Attention to the Details
Though an audit may report a big-picture interpretation of how your firm is doing, this picture is really just a composite of many small details produced along the way. Before finalizing any reports, it is absolutely essential that you pay attention to the details.
Doing things such as checking for completeness, valuing quality over speed and having objective evidence to support each of your numerical claims will make the entire auditing process much easier.
These simple — but important — tips are just an introduction to how your firm can prepare for an audit and can help orient you in the right direction.
