An audit takes place annually when your nonprofit’s professional auditors conduct a careful and structured process to confirm that your financial statements are reasonably stated.
However, even though it is a necessary practice for your organization to undergo each year, it can cause some sweaty palms and racing hearts! It is common that the audit procedure – from preparation to fieldwork to issuance – can result in a stressful few weeks for many organizations.
But do not lose hope! There is much your organization can do in advance to prepare for the experience, thus ensuring a successful, smooth, and efficient audit for your auditors and for your staff.
Here are some critical tips that come directly from an auditor to help you implement an efficient process:
1. To begin preparing for the audit, remember that the engagement letter is a great tool to use as your guide. It will contain important information that will help you understand what to expect. For example, it will define the scope of the audit, identify the team members and explain what areas they are responsible for, in addition to describing the services that will be performed. The engagement letter will also include the anticipated start and end dates of the audit.
2. Before the field work even begins, check in with your auditors. They may have reached out to you to schedule the audit, but if not, take responsibility to set up a time to talk to them, whether it is in person or on a video call. Discuss any changes in the organization, provide updates on any changes to the internal control process or any change in accounting standards. Be sure to take this chance to ask questions about any concerns you have.
3. Next, establish a timeline with your audit team. This will be a critical step to making sure that your expectations, and theirs, are met regarding what they need from you and what you need from them.
4. Meet with your staff after you have met with your auditors. This will enable you to give them a reasonable amount of time to prepare for the audit, minimizing some of the inevitable stress brought on by the audit and the additional role they will play while fulfilling their normal duties.
5. As the starting date for the audit draws closer, establish a timeline for closing the books and records with your staff, making sure that your schedules are up to date and the books are closed reasonably close to year-end.
6. To help the audit run smoothly, make sure all supporting schedules agree with your financial statements or trial balance. Tying the schedules to your accounting software will alleviate any “back and forth” discussions while ensuring that the financials you turn over to the auditors are reconciled and complete.
7. To further increase efficiency, ask your auditors how they would like to receive the supporting schedules and documentation before they begin. It is wise to separately store copies of all the requested schedules and documentation, so when the auditors seek these items, they are easily and quickly accessible. This will help reduce time spent and keep the cost down too.
8. As you look to the current year’s audit, take the time to learn from past audit experiences. This means reviewing the previous audit results and past financial statements. Were there any audit recommendations or any uncorrected misstatements offered at the time? It is essential to address any corrections or issues that occurred in the past in order to get a good start on the upcoming audit.
As auditors, we understand that we are creating additional work and perhaps causing challenges in your workflow. We assure you that it is our goal to both avoid disrupting you and to avoid contributing to a negative environment. Rather, we strive to be as minimally invasive as possible.
But at the same time, we want to serve as a resource for you, acting as your partner and helping your organization thrive. As such, we will do our best to guide you through the audit process. Whether you are seasoned organization that has been through many audits or an organization struggling through your first audit, we want you to gain the most value possible from our insights. With that in mind, we urge you to maintain open communication for a smooth audit process and always remember to draw on your engagement team, leveraging their skills and expertise.