Audit Preparation Best Practices

Transcription

1 Audit Preparation Best Practices Jeffrey L. Straus, CPA Kyle R. Schafer, CPA Audience Poll How many have been through an audit? Multiple times? Why do you have an audit? Bylaws Loan covenant/grants Member/customer requirement What is your biggest challenge to closing out your books and getting ready for the audit? What causes you the most difficulty during the audit process?

2 Pure Audit Client prepares the financial statements (with footnote disclosures) does not contract with auditor to write the financial statements No auditor proposed adjusting journal entries WE SELDOM PERFORM PURE AUDITS

3 Why Should I Do Anything Up Front? Less disruption to your staff and your core purpose (Get In, Get Out, Get Better) Keep cost down Get audit finished sooner Gain a greater understanding of my internal control environment and financial health Basic Elements of Financial Statements Independent auditor s report Financial statements Balance Sheet/Statement of Financial Position Income Statement/Statement of Activities Statement of Functional Expenses (sometimes) Statement of Cash Flows Notes to the financial statements Supplementary information

4 Keys to a Successful Audit COMMUNICATION Utilize your auditor as a resource: Remember to communicate throughout the year with your auditor to avoid any surprises or adjustments during the audit. Communication is KEY Identify potential complications as early as possible It is important to define expectations early in the process Keys to a Successful Audit (cont.) Planning meeting Agree on expectations Back date planning Timing of audit and Form 990 completion Timing of financial statement meetings Timing of presentation Go over PBC list (Provided By Client) Breakdown by responsible person and date to be provided Workpapers should be provided in electronic format Materiality, scope, fraud, etc

5 Keys to a Successful Audit (cont.) IRS Form 990 PBC list reviewed and understood Governance discussion(s) held Utilize the client specific Portal Secure file transfer Easily identify what has been provided Tip utilize PBC list for file naming Interim Audit Work/Getting Started Update internal control procedures & checklists Update organization chart Provide updates for new contracts, leases, bank financing, LOC covenants, other agreements Provide fixed asset additions and disposals Identify federal major programs, if applicable $750,000 threshold Must obtain 20% coverage for a low-risk auditee Take a step back and think about your organization and what has occurred during the past year communicate this to auditor

6 Interim Audit Work/Getting Started (cont.) Confirmations - update through Confirmation.com Provide copies of board minutes for the entire year through audit date Debriefing meeting with auditors Dates established for: Draft meeting Finance/board meeting Back-date planning Prior to Final Audit Work Provide electronic downloads of: Trial balance Budget (if applicable) General ledger detail Review list of schedules to be prepared (PBC) Make sure sub ledgers reconcile Accounts receivable Accounts payable Inventory Fixed assets Completion of a monthly Month-end Checklist Provide board member contact information

7 Why use a Month-end Checklist: Reconciliation of completed workpapers to trial balance Adds structure and accountability Helps identify issues in a timely manner Errors Fraud/Theft Increases efficiency and effectiveness of accounting procedures Consistency in monthly reporting to board Best Practice within the entity s Control Environment Month-end Checklist CASH PERFORMED REVIEWED BY: DATE: BY: DATE: 1 Review general ledger accounts for reasonableness. 2 Reconcile all bank accounts to their prospective general ledger accounts. Cash (all accounts) Investments (all accounts) 3 Post the necessary adjustments such as service revenue charges and interest revenue to balance general ledger with reconciliation. 4 Have reconciliation reviewed ACCOUNTS RECEIVABLE 1 Review general ledger accounts for reasonableness. 2 Reconcile general ledger accounts to the accounts receivable aging report. 3 Post any necessary adjustments. 4 Have reconciliation reviewed

8 Month-end Checklist (continued) PROPERTY AND EQUIPMENT 1 Review general ledger accounts for reasonableness. 2 Make sure any acquisitions or disposals of fixed assets are documented so they maybe entered in the fixed asset software at year end 3 Review maintenance and expense accounts for possible capitalizable purchases. OTHER NON CURRENT ASSETS 1 Review general ledger accounts for reasonableness. 2 Reconcile general ledger to detail. 3 Make adjustments as necessary. ACCOUNTS PAYABLE 1 Review general ledger accounts for reasonableness. 2 Reconcile general ledger balance to accounts payable detail. 3 Have reconciliation reviewed. 4 At year end, make sure proper cut off procedures are in place at year end. For expenses related to the prior fiscal year after year end. Make sure they are entered as a payable in that year and paid out of the payable account in the new fiscal year. Month-end Checklist (concluded) ACCRUED EXPENSES 1 Review general ledger accounts for reasonableness. 2 Reconcile general ledger to detail. (example: Voluntary retirement withholding accounts are accurate and up to date with actual payroll and payment activity). 3 At year end make sure that payroll is accurately accrued for the percent of time in the fiscal year closed. (example: 3 days of a 10 day period are in the past fiscal year than 3/10ths of that payroll should be presented as accrued expense on the balance sheet.) 4 Make adjustments as necessary. 5 Have reconciliation and accrual entries reviewed. Revenue/Expense Analytics 1 Review revenue/expenditures posted to the general ledger and compare to budget, note major items such as: Revenues Expenses Salaries Health Insurance Retirement 2 Make the necessary adjustments during revision period

9 Final Audit Work Have all requested schedules and documents completed day one Make sure you have supporting documentation for significant areas including: reconciling schedules, journal entries, etc. Provide detail to support all major balance sheet items Bank statements and reconciliations Sub-ledger detail (AR, AP, Inventory, FA) Pull support for material transactions and subsequent events (receipts & disbursements) Final Audit Work (single audit) For organizations that expend more than $750,000 in federal funding: Schedule of Expenditures of Federal Awards (SEFA) prepared and reconciled to accounting records Updates to procedure manuals and/or policies for applicable uniform guidance updates Samples pulled and ready (receipts, disbursements, payroll, major programs) Copies of grant awards, agreements and approved budgets Audit reports from oversight agencies Reimbursement requests

10 Format for Items Needed Trial balance (EXCEL) Detailed general ledger (EXCEL or PDF) Sub ledgers and supporting schedules (EXCEL or PDF) Electronic access to files (auditor/read only access)? Portal utilization Additional Items that May be Requested Journal entry detail and support Cash disbursements over a given $ amount Documentation for revenue sources Budgets Analytical comparisons and explanations for large variances (year-to-year comparisons)

11 Footnote Updates Update footnotes whenever possible (use prior year as possible starting point) Accounting policy changes, nature of organization, program descriptions, etc. Summary of debt activity Fixed asset additions and disposals Receivables Subsequent events (borrowing, capital projects, related parties, etc.) Single Audit (Uniform Guidance) Review compliance supplement Consider matrix and applicable requirements to each federal grant /omb/circulars/a133/2017/compliance_supplement_20 17.pdf Tiny URL

12 Preparing the SEFA (single audit) Utilize SEFA to identify potential new major programs Tie out total expenditures on the SEFA to the revenue recorded in the general ledger Opening receivable (deferral) should agree to the prior year audited SEFA Tie ending receivable (deferral) to federal receivables per trial balance Management Letter & Findings Review prior year management letter recommendations (implemented/corrective action taken?) Draft a response for recommendations that were not implemented Implications of information-only comments Upcoming Accounting Standards Cost/benefit considerations Respond to findings (if necessary) to document how the issue has been resolved Prepare corrective action plan if known findings still exist

13 Common Audit Findings SKE (Skills, Knowledge and Experience) Ability to write financial statements Auditor assistance with material journal entries (error vs. matter of convenience) Segregation of duties Payroll controls/procedures General ledger reconciliation Journal entry review Common Audit Findings (cont.) Revenue recognition Bank reconciliations Timeliness of completion Federal timekeeping requirements Significant budget variances

14 Post Fieldwork Exit interview with client Discuss what went well and what can be improved Discuss timeline for completion and delivery of final reports Wrap-up loose ends in a timely manner Communicate who is handling submission requirements (single audit) Establish plan for completion of IRS Form 990 Summary Communicate Plan and set expectations Schedule timing Be ready Auditee preparation = Efficient and effective audit

15 Presenter contact information Jeffrey L. Straus (517) Kyle R. Schafer (517)