INDUSTRY INSIGHTS | WINTER 2011/2012 EFFECT
Make Your Audit Work for You:
Three Steps for CFOs
Winter is here, but for most controllers and chief financial officers (CFOs), life boils down to just two seasons: the year-end audit and every other day on the calendar. Though this time of year falls within the cherished audit off-season, finance executives would be wise to use this lull to prepare for the audit itself.
If transforming your year-end audit into a year-round exercise sounds about as fun as reading the tax code or getting your teeth pulled, consider that oiling the audit machine now will make the entire process smoother and more cost-effective down the road. Even better, it can help you leverage what could be just another compliance function into something truly advantageous for your organization.
I advise taking a three-pronged strategy for gearing up in advance and deriving the most benefit from your annual audit—both in cost and value.
1. Spend a few dollars now to save money later
Overcome your fear of the billable hour. Many CFOs and controllers I talk to are reluctant to call their CPA when questions and unusual situations arise, because they worry they’ll be charged for the time. Instead, they wait to address these issues during the audit—when CPAs are onsite anyway—thinking it will spare them the extra expense. All too often, however, these issues do not get addressed in sufficient detail because of audit deadlines and time pressures.
… oiling the audit machine now will make the entire process smoother and more cost-effective down the road.
Most CPAs I know won’t charge you for an incidental phone call here and there, and include them as part of the overall audit package. When deeper consultation or research is called for, they’ll typically give you an estimate before moving forward with any out-of-scope work.
Consider how planning and interim work, if completed onsite now, will shorten the final year-end phase. You’ll have a more efficient audit—and be able to work on other issues that impact your organization. Some areas to look at:
- Your job schedule and indirect cost allocations—You can reduce the time spent completing the job schedule for items such as excluded indirect costs at the end of the year, rather than during the audit, when there often isn’t enough time to allow the internal accounting staff to research the issues.
- The document request list—Work with your auditor to determine a format that is easy for you to complete. This may be by audit section, if your books are completed in time for the auditors, or in chronological order, if they are not yet finished.
2. Modify your closing process
Once the audit is complete, be sure to review the internal control suggestions and look for opportunities to improve your procedures. Analyze the prior year’s adjustments and re-read the management letter for insights on closing. Discuss the methodology your auditor used to come up with the adjustments.
Consider using the auditor’s schedules in your closing process to provide more accurate interim financial information to management and reduce the time needed to close your books. I’ve had clients spend a lot of time and effort attempting to copy changes I made, when they could have simply asked for my workpaper.
You can also review your closing schedules for calculations that are particularly cumbersome. Perhaps your auditor has taken a more basic approach and can give you a calculation for simplifying your month-end closing.
3. Do your own legwork
Being prepared for your audit can help reduce fees. For instance, your administrative staff should gather your invoices, and prepare confirmations and legal letters in advance. Incorporate schedules supporting the footnotes into your closing process, and coordinate schedule preparation with your auditors so they align with your closing. This will reduce the time auditors have to spend preparing schedules. Review the footnotes for schedules that you can prepare internally as well.
You may also want to prepare easy schedules, such as lease and loan maturity. Clients who organize their own information generally know more about their financial statements. As a result, they need to discuss fee increases with auditors less frequently. When a client has all the audit information ready and has no significant proposed adjustments, we can spend the extra time discussing their operations, rather than trying to put together schedules from source documents.
Better preparation will yield more accurate financial information, help control costs, and create a less intrusive audit. By taking these three steps in the late fall and early winter, you can convert your annual audit from a distraction to a powerful exercise in operational efficiency. The trick is to shift your thinking from the audit as a singular activity to a year-round process and make the “off-season” work in your favor.