AUDIT-READY: PREPARING YOUR PEO FOR A SMOOTH FINANCIAL REVIEW

We’ve all been there. It’s year end and we are stressed. Along with the other issues, regulatory deadlines for financial audits are right at the top of the list in importance. Nothing feels better when you can tackle the year-end audit, and everything runs like a well-oiled machine. So how do you get to that point? Here are my top tips for not only making year-end a breeze but also making you audit ready all year long which, let’s face it, gives leaders like us more confidence in the numbers we present and the future planning which results from them.

CREATE A ROBUST MONTH-END CHECKLIST AND STICK TO IT

Most importantly, this list should include all the essentials (bank recs, AR and AP schedules, depreciation schedules, etc.) but don’t forget the places where things hide. Don’t forget those pesky liability accounts. Additionally, a good checklist should include not just the completion of these items but also reviews by the appropriate people. You need to catch the items that carry over in the balance sheet such as old outstanding checks, miss-recorded entries, or old A/R that was accidentally not collected. Monthly review gives you awareness, but also the chance to remedy the problem quickly resulting in less financial risk.

DETERMINE WHERE THE RISK OF ERRORS OR POTENTIAL FRAUD COULD HIDE

Auditors care about that and so should we! Create a process for reviewing financials as well as the underlying numbers. Use technology to make this efficient and consistent and adjust the criteria as needed. Finally, think about how someone from the outside can verify that this was done and if you can explain why you are doing it that way. This will give you and your auditors confidence in you, your team, and the company.

THE SCHEDULES ON YOUR CHECKLIST

Sure they’re done, but are they right? Set up a process which forces you to know the schedules not only tie to the balance sheet, but that they are correct. Typos and Excel spreadsheet formula issues can be problems and then come year-end you have to do an entry to add another $30,000 in expenses that were pulled to a schedule. A simple review by a second person, or better yet, using technology to help you, can prevent an unexpected entry leaving you to explain the new numbers and why your process was not sufficient.

PREPARE ALL FOUR FINANCIAL STATEMENTS EACH MONTH

Review YOY and MOM. Compare plan to actual and review margins. Identify large variances and potential issues and dive into the details. If your team is really good, you kick it to the team to review and get back to you. Don’t hold it at the top and expect to have time. You won’t!

DOCUMENT PROCESSES

Have current process documentation that matches the process of getting completed in real life. Don’t just check the box. If you can count on the processes, you will be in a much better position internally and with your auditors.

WATCH FOR CHANGE

Identify significant changes as you go through the year. Examples include changes in leadership, new software, expanding into a new market, etc. Be able to explain these changes including intent, strategy and actual and expected impact.

THINK AHEAD

Think of your next audit after completing your current audit. I know it’s not easy when we’ve been working nonstop, but it pays off. Identify what did not go well, what was surprising, and develop a plan to correct it. Most importantly, execute the change while it’s fresh in your mind and you will be thankful you did.

HAVE A GREAT TEAM IN PLACE!

It’s not easy sometimes but this is critical for making everything above happen. Hire well and terminate quickly! Good teams can participate in the audit. It makes the audit process a lot less stressful. Don’t hold it all at the top!

In conclusion, it’s not rocket science and most of us know what needs to be done. Measure progress and delegate well. Make it a team effort. If this list is overwhelming, then start with the most important and impactful and focus on that. Do the next right step and each year it will get easier and easier. Before you know it, you will be ready for an audit any time of year.