Getting Ready for an Audit

Many organizations must undergo a regular financial audit by an external auditor. While the prospect of an audit can cause fear and trepidation for those being audited, this does not have to be the case. Knowing ahead of time what information the auditor is likely to ask for, and having that information organized and available before your first meeting with the auditor, will go a long way to ensuring a smooth and stress-free audit.

From the auditor's perspective, an audit engagement is made much easier when clients have properly gathered and organized all required information, and are able to provide it to the auditor in a timely manner. The auditor's job can then be completed more efficiently which can translate into fewer hours on the job, and potentially result in lower audit fees.

In preparation for the audit, and at least a month before the audit engagement is to commence, you should ask the auditor to supply you with a "shopping list" of information that he will require.

The standard monthly financial package should ideally contain much of the information that the auditor needs. Each month's financial package should contain supporting information for all balance sheet accounts. This would include for example detail aged A/R and A/P listings, capital asset depreciation schedules, and detail of prepaid expenses, deferred revenue and accrued liabilities accounts.

When the auditor arrives, you should ensure that:

• the appropriate people will be there, such as the office manager, director, accountant and bookkeeper

• all records are collected ahead of time (see below)

• documentation is easily accessible and made available in an efficient manner, and

• adequate time is scheduled for the visit

Information typically required for an external financial audit will include:

• Employee contracts and payroll records

• Bank statements, deposit books and invoices

• Up-to-date general ledger

• Lease, contracts for rental equipment, 3rd party agreements (includes contractors and consultants)

• Up to date inventory list (if applicable)

• Capital assets sub-ledger (if applicable)

• Documentation of internal controls

• Access to board minutes, contracts, by-laws, letters patent, supplementary letters patent, legal invoices and legal correspondence

• On-site access to the bookkeeper or some other person who knows computer and filing systems

It is important that financial information is easily accessible. Whether in paper or electronic format, all financial records should be filed neatly and logically, for example in chronological order or alphabetical order. Original receipts and invoices should be available (credit cards statements and/or slips are not considered to be receipts or invoices). This would include original airline and train tickets, etc. Also, all records must be kept on site for as long as the law requires.

An audit can be very beneficial to the organization. You should use this opportunity to ask any questions, improve your internal controls and ensure that staff is aware of the rules governing the spending of your organization's funds.