Be prepared

As another year is winding down, most
people are taking the time to reflect
on the ups and downs of the past year, while tying up any loose ends and
making preparations for the year ahead.

Business is no different, and right about
now, many companies are preparing for
their year-end audits. Unlike personal
reflections, however, for many businesses,
a corporate audit is mandatory.

A number of setbacks and hindrances
can delay or derail an audit process, so
companies need to be properly primed and
prepared for issues that may arise.

“The end of the year is hectic for all
organizations, but taking time to plan and
prepare for your internal year-end closing
and external audit process will pay huge
dividends,” says Meresa Morgan, an audit
shareholder at Briggs & Veselka Co. “You
need to be fully prepared for any and all
aspects of the audit.”

Financial audits exist to add credibility to
the implied assertion that your organization’s financial statements fairly represent
your financial position to stakeholders and
creditors. A financial audit is an important
step in providing a level of assurance not
only to your shareholders and creditors,
but also to regulators, customers, suppliers
and employees. Because of the significance of an audit, some companies may
hire consultants to help ensure that they
are prepared and that records are in proper order.

Smart Business spoke with Morgan
about year-end audits and how your company can be adequately prepared for them.

What’s involved in a year-end audit, and why
does it have to be done?

Many organizations — public, private and
nonprofit — are required to have a year-end audit. The requirement may be
imposed by various regulators, financial
institutions, investors, board of directors,
grantors, etc., and is usually required to be
performed by an independent certified
public accountant. In most instances, there
is also a deadline imposed for completion
of the audit, which usually ranges from 90
to 120 days after year-end.

What are the first steps a company must take
when preparing for a year-end audit?

In an effort to expedite the audit to meet
these deadlines, some audit procedures
may be performed prior to year-end. If the
company has a sufficient accounting
department and has internal control
processes that have been documented and
implemented, the audit firm can test these
controls by performing interim audit procedures. Also, if the company has inventory, cycle counts and reconciliations may be
performed during the year, versus at year-end. Interim procedures can be especially
important if the company’s audited financial statements are due within 90 days after
year-end.

The following steps should make the audit
process more efficient and less costly:

• Document existing controls and
  ensure that they are implemented as documented.

• Review prior year recommendations
  made by the audit firm to ensure any significant weaknesses have been addressed.

• Meet with your auditor prior to year-end to discuss any significant issues or significant changes in management or in the
  company’s financial statements.

• Notify your auditor if the company is
  not in compliance with credit agreement
  covenants.

• If not automatically provided, request
  from your auditor a list of items you will
  need to have available for him or her to
  perform the audit. Then, have all requested
  documents available when the auditor
  arrives for fieldwork and preferably in an
  electronic format.

• Reconcile and document support for
  all balance sheet accounts prior to the start
  of the audit.

• Make sure management is available
  and involved in the auditing process. Also,
  an exit conference at the end of fieldwork
  is beneficial for both the company and the
  auditor.

• Take responsibility for drafting the
  financial statements, including required
  disclosures.

What are the consequences a company faces
if it doesn’t perform year-end audits?

If the company were unable to meet the
due date requirements imposed by a financial institution, they would most likely fall
into default of their loan covenants and
would need to request a waiver from that
particular lender.

Should a company seek assistance in preparing for a year-end audit?

Some companies that feel they are
unable to perform the steps above or that
have staffing concerns will hire consultants to assist them in preparing for a year-end audit. While that is definitely an alternative solution, it is important for management to maintain responsibility for the performance of the consultant and for the
integrity of the financial statements.

MERESA MORGAN is an audit shareholder at Briggs & Veselka Co. Reach her at (713) 667-9147 or href='mailto:mmorgan@bvccpa.com'>mmorgan@bvccpa.com.