Audit time doesn’t have to be all that stressful. Honestly. If you’re looking to add some zen into your audit, you’ve come to the right place.
It’s important to adopt the right mindset so that your thoughts, which rule your actions, match the underlying reality of the audit cycle and the way audits actually get done. Stephen Covey, best-selling author of The 7 Habits of Highly Effective People, suggested we all should ask ourselves the question, “Is real life more like school, or the farm?” At school, it’s sometimes possible to slack off for a while, then cram the night before the exam and still get by with a passing grade. Does that work on the farm—to slack off, then at the last minute till the soil, plant the seeds, water the plants, pull the weeds and grow the crops the night before the harvest?
Well, duh. Of course not.
The audit engagement is like the farm. The lesson in this comparison is that you can reduce, if not eliminate, audit stress by being the farmer: tending your crops throughout the year, so when harvest time arrives, you are ready to enjoy the bountiful fruits of your labor.
Here are three steps you can take to get the most from your audit with the least stress.
1. Tend to Your Crops All Year Long
Accounting systems that function well do so because they are designed to continually self-correct. Chances are your system is good at this for everyday things. You probably also do some things every month, like reconcile the bank accounts, and that’s great. But do you have a solid month-end closing checklist and timeline to ensure an accurate (and self-correcting) month-end close, along with preparation of accurate, reliable monthly financial statements?
If so, congratulations—you are well on your way to a reduced-stress audit. If you’re not quite there yet, here are a few things to consider for your month-end closing checklist.
Every month, you should:
Below are the primary balance sheet accounts and related income statement accounts that you will want to reconcile/roll forward every month. Use this chart to keep track, and add other accounts to meet your organization’s unique needs.
|Primary Balance Sheet Account(s)||Related Income Statement Account(s)|
|Cash||Various income statement accounts|
|Investments||Net investment return|
|Accounts receivable||Program revenue|
|Promises to give||Contribution income|
|Accounts payable||Various income statement accounts|
|Accrued expenses||Various income statement accounts|
|Deferred revenue||Program revenue
|Debt, including capital lease obligations, and deferred debt offering costs||Interest expense and amortization expense|
|Net assets, including reclassifications of temporarily restricted net assets in satisfaction of time or purpose restrictions||Contribution income, reclassifications of temporarily restricted net assets in satisfaction of time or purpose restrictions (e.g., expenditures in satisfaction of donor restrictions), losses on uncollectible promises to give, and amortization of discounts to present value|
Note: Generally, it is not necessary to perform monthly rollforward analyses for property and equipment, as the detailed schedules of these assets are often posted only quarterly or annually. If this is the case, estimated depreciation expense can be recorded monthly, pending a “true-up” adjustment later at quarter-end or year-end.
The most important factor when tending to these proverbial crops is communication. Talk to your auditor often throughout the year about difficulties you’ve encountered and accounting questions you have as well as the opportunities you’re seeing within your industry and organization. If you have the right auditor, they will not only be able to answer everyday questions, but they will also provide the sound business advice and counsel that comes from years of working with many organizations over time. If your auditor can’t or won’t do this, it’s time to find a new one.
2. Plan and Prepare for Harvest Time
Don’t expect your audit to go smoothly without some advance planning. Investing in careful planning now will pay out in multiples later. Don’t underestimate how important this step is to a successful audit.
Two or three months before year-end, you should:
3. Bring in the harvest
Now comes the payoff for all your hard work, which is not to say the audit itself is a cakewalk. Yes, it will be somewhat disruptive, at times irritating, and it will probably cause you and your team some inefficiency compared to days in the office with no auditors around. But all the work you’ve put in throughout the year will allow you to reap the benefits of a smooth harvest.
At year-end, you should:
Remember: Communication throughout the audit will produce the best results while reducing everyone’s stress along the way. Your auditor wants you and your organization to be successful and hopes to help you by providing a high-quality audit, sound advice and personal support to you throughout the year.
Bringing in the harvest is almost always accompanied by celebration. So, don’t forget to celebrate the successful completion of your audit! After a long process well done, you deserve to feel great about it. Then, it’s back to tending to those crops for next year!
What is an audit and why is it important for your organization?
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