Financial Statement Audit Process
Financial statement audit is quite complicated- and stressful. Most of us may scratch our heads every time we hear this but a painless process of financial statement audit is possible. Here are 6 tips to help you in financial statement audit so you can have an accurate and sound financial system. Let’s get started
1. Gather all significant accounts.
This is the most crucial step in preparing your audited financial statements. Make sure to gather all significant accounts such as cash, accounts receivables, account payables, inventory, and accrued expenses. Ensure that these significant accounts have supporting documents or items.
2. Changes in equity accounts.
Gather all changes in equity accounts which includes new equity agreements or amendments to existing agreements. This is to ensure that all changes in the equity accounts during the fiscal year are accounted for and presented correctly within the financial statements.
3. Reconcile latest agreements and amendments.
Make sure to gather the latest agreements or amendments to existing agreements entered during the year. This includes operating agreements, debt agreements, lease agreements, and other important agreements. All of these will be reviewed and checked by your auditor during fieldwork audit procedures that will be used to make the footnotes in your audited financial statements.
4. Update your PP & E schedule
Compile all the list of assets you’ve purchased and sold within the year- this will expedite the process of your accountant to calculate your depreciation. Ensure that the summary of your PP&E includes amounts, dates, and descriptions of all the assets sold and purchased within the fiscal year.
In addition, make sure that your capitalization policy is in compliance with the latest IRS regulation.
5. Gather all related party transactions.
This includes detailed transactions like purchases, sales, leases, etc. This will be submitted to the auditor for review during fieldwork audit procedures and will be used to include in the footnotes of your financial statements.
6. Communicate to the auditing team and prepare the auditor’s preparation checklist.
Be sure to inform the auditing team all of the significant changes in your business operations from the previous fiscal year audit. Informing them the changes ahead of time will ensure you a less-hassle financial audit. However, if during the year you have a major transaction, it is better to inform this to your auditor personally- working through a transaction after it occurs allows for monthly reporting to be accurate.
Ensure that you prepare all of the items on the auditor’s preparation checklist prior to the beginning of fieldwork. Below is the general list of items most frequently required by auditors in connection with the audit of financial statements for small to medium-sized companies. Take note that this item should be submitted electronically, in Excel format, if possible.
- General ledger covering the entire fiscal year.
- Internal financial statements.
- Articles of Incorporation and Bylaws.
- Equity certificates.
- Employee handbook.
- Accounting Policies and Procedures manual.
- Organization charts and systems documentation (memos detailing the flow of transactions within the company).
- Bank notes, security agreements, and lease agreements.
- Minutes of meetings of the Board of Directors and any other oversight committees.
- Fiscal year budget.
- Your financial auditor will need access to all paid bills and checks received during the year.
- Reconciliation and schedules supporting all asset, liability, and equity accounts.
With a huge amount of preparation and constant communication between the company and the auditor, the process will be much easier. Preparing for the financial statement audit can save you money and time in the coming years.