How to Prepare for Your Year-End Audit – Are You Ready?

Source: Monica Zorn, RoseRyan

It’s that time of year again. Remember last year, after the auditors came and went, when you promised yourself next year would go a lot smoother? Well, here we are, with an opportunity to set up all of your department’s information as organized and as clean as possible so that you can keep any bumps between your team and the audit team to a minimum. To help with this process, I have put together a list, primarily for accounting managers, to prepare for the year-end audit.

Be sure you are on the same page as the auditors: Every quarter, you have provided documentation per the audit request list (also known as PBC, or Prepared by Client). Check with the auditors that they will be using the data that you’re taking the time to put together for them. Oftentimes, those of us who are tasked with working with auditors find out only after we have provided a schedule with multiple tabs of information that they will not be using those tabs. They may instead rely on other data points they have collected over the year or they are just not fully aware of the additional information. Communication here will prevent everyone from wasting time.

Take a look back at the past year: In the preparation of year-end, review the information that was provided to the audit team on a quarterly basis as well as any comments the auditors or your internal SOX team made afterward. Keep in mind quarterly reviews do not necessarily find all issues or errors. They are more likely to crop up during the year-end, when the audit team really digs into the details.

Check your work: When creating the year-end schedules, look at the logic of the worksheet, the formulas used in each calculation, and verify the totals match the financials. Hint: if using Excel, select the “formulas” tab and select the “show formulas” option. This will change the worksheet from showing the resulting number to the formula used in each cell. Look for any changes made since the last quarter’s review in methodology, calculations, method of gathering the data (because of a different report or an updated system), or presentation on the schedule. Then, if you are the person creating the audit schedules, have someone else take a look who is familiar with the process. That person will probably find little things that you didn’t see simply because you are too familiar with the information.

Address any mistake in the schedule ahead of time: If a discrepancy is found during the internal review process, create a new year-to-date schedule by quarter with the changes identified, documented, and quantified. Discuss your findings with management so they can determine if the changes are material and how best to communicate them with the audit team.

Be organized: Make an audit binder or a folder on your secured internal site with the schedules and any information that would help someone else prepare them. Keep track of when you submit your schedules to the audit team and what version you give them. If there are any questions, you will both need to be looking at the same schedule.

Don’t forget about the effect on the first-quarter review: Lastly, when creating your first-quarter review schedules, verify they contain any updates from the year-end review – both yours and the audit team’s. In other words, don’t automatically pull the previous first quarter schedules to use.

These tips will hopefully make your audit process much smoother than last year. For more information about this topic, check out our intelligence report Audit time? Don’t sweat it.

Monica Zorn is a member of the RoseRyan dream team. She specializes in controller level issues, reconciliations and audit prep, and SOX.

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