Your accounting department may not yet be feverishly gearing up for your company's year-end audit, but it is never too early to start planning. The earlier you start planning and gathering data, the smoother your audit will be. Have you scheduled or conducted your year-end inventory counts? Prepared confirmations? Composed a final list of schedules required for your auditors to complete the audit? As the audit process becomes increasingly complicated due to new regulations imposed and requirements to meet, it naturally takes more time to complete. You can reduce that time (and expense) through proper planning. By following five simple steps, you can help facilitate a smooth and timely audit.

1) Select the right firm.  
The first step to ensuring a smooth audit is selecting the right firm for the job. Choosing an accounting firm to perform your audit can be a lot like seeking to fill an open position at your business. You'll need to begin your search from the perspective of recruiting a key advisor to meet your financial and accounting needs. Be prepared to ask questions and actively "interview" your audit firm candidates to determine if your expectations will be met. There are a number of factors that should affect your hiring decision. Some of the most important factors to consider include:

• Experience - Research the firm's overall accounting and auditing experience as well as the auditing team's experience, including experience within your particular industry. Read biographies on the audit partners and the audit team.
• Credibility and Expertise - Ethical standards and proper procedures may often be gauged by AICPA credentials and PCAOB certification. If your company is public, check to see if your candidate is PCAOB certified. If not, why not? Have they applied for certification and failed? That is important to know before hiring them to complete your financial statements.
• Resources - Does the firm have the resources necessary to handle complex issues that may arise during the audit?
• Culture and Professionalism - You will have to work with these professionals on a regular basis. Make sure that you feel comfortable with them, with their firm's culture, and with how they communicate.
• Communication - It is essential that you maintain an open flow of communication with your chosen auditor. Find out what their communication practices are and determine if you are compatible in communication style and expectations.
• Cost - Sometimes the old adage "you get what you pay for" is true. Be wary of firms that undersell their services; usually there is a reason.
• Reputation - Ask for references. Talk to other clients and find out how satisfied they are with the firm's services, communications, and overall professionalism.

2) Learn from the past.  
Use the results of last year's audit as a planning and budgeting tool for this year's audit. While some of the procedures will change based on new regulations and requirements, you can learn from previous experiences and benefit from that knowledge. For example, if your employees were not as organized or prepared last year as you think they should have been prior to the onset of the engagement, develop a new approach this year. Structure performance and development objectives for all staff members who will be involved in the audit process. Try implementing the "SMART" guideline when assigning tasks, objectives and goals to your employees:

• Specific - Is the assignment and goal clear, specific and tangible? Does the employee know what to do to achieve this objective?
• Measurable - Is the assignment or objective measurable? Can you track progress at any time? Are there any quantifying or qualifying reference points or benchmarks?
• Ambitious - Does the task or objective require the employee to work above or beyond his or her normal capacity? Will the employee be proud to have tried or achieved this objective?
• Reachable - Is the goal or objective realistically attainable?
• Time-bound - Does the objective have a deadline? Is the deadline realistic?

3) Time is money - establish an audit timetable.  
In addition to facilitating the audit by completing your pre-audit responsibilities on time, it is important to plan and stick to the audit timeline. Before you begin, meet with your auditor and develop a realistic audit timetable for all aspects of the engagement. Work with your auditors to compile a list of all the items that are required for the audit, and establish due dates for each. Your audit timeline should include a list of the following actions:

• Preliminary work to be done prior to year-end (systems testing and process walk-throughs)
• Procedures that should be performed prior to year-end (preparation of confirmation letters and year-end inventory observation)
• Field work to be completed after year-end

Most companies with fiscal years that end in December want their audits completed as early as possible in the first quarter of the following year. In order for this deadline to be met, you need to start early and understand what schedules and analyses can and should be performed in-house. It is often possible to schedule portions of the audit work prior to year-end. Tests of internal controls can often be conducted at some point after the mid-point during the year (preferably no more than six months before year-end). Where substantive testing is planned, it is often to your benefit to schedule as much testing as possible before the year-end date. Pre-year-end testing should not be performed more than three months earlier than year-end, and proper roll-forward procedures should be completed.

4) Be prepared and proactive.  
Once you have received your Client Assistance Package (CAP) from your auditor, review it carefully and address any questions that you have with the auditor as soon as possible. Begin to compile and assemble the data and documents listed. Is there a report listed that you may already have in a different format? Don't waste valuable time by recreating the wheel. If you have a report that contains the same information as is requested on the CAP, check with your auditor to see if you can substitute the report. Communicate! Don't assume that the existing report will work - assumptions like that often lead to auditor down time (they're waiting while you're busy generating the data that should have already been prepared), and may cause a screeching halt to productivity.

Some of the items that you should be prepared to provide to your auditor include:

• Confirmations: These are independent statements that support the financial information in your records. Your auditors will provide you a template which you will put on your company's letterhead and give back to the audit team. They will send the letters to your banks, other financial institutions, attorneys, people and organizations to whom you owe money, as well as to those who owe you money, to confirm the amounts reflected on your books. The confirmations are sent by and returned directly to your audit firm to ensure credibility.
• Evidence of internal controls. Your employees are likely to either meet with the auditor in person or complete a questionnaire documenting the procedures relating to financial transactions, maintaining property and equipment, financial record-keeping, and other significant processes that may involve a degree of risk.
• Documentation. You should be prepared to furnish the auditor with a number of documents, including:
  • Board minutes
  • Leases and other contracts
  • Bank statements, reconciliations, checkbooks
  • Chart of accounts, journals, ledgers, trail balance, etc.
  • Budget for the fiscal year
  • Accounting files, including accounts payable, receivables, payroll, etc.

5) Communicate early on with your auditor.  
Every effort should be made to communicate with your auditor well in advance of the onset of the engagement. Be proactive in the communication and planning of your audit. Avoid last-minute surprises that may impede the expediency of your audit. Have you reviewed your financial operating results with your auditor, discussed any significant areas of concern, uncertainty, or new facts relating to your operations that might require discussion of the application of accounting principles or auditing procedures? Do you fully understand the new guidelines issued regarding internal controls and fraud detection? It is necessary for you to be clear on any new regulations that may affect your pre-audit responsibilities. Meet with your auditor as soon as possible to review your questions, set up the audit timetable, and communicate any major changes that have occurred in your business during the current year. Your auditor needs to be aware of changes in management, staffing, internal process and procedures, and financial condition; even if you do not believe the changes affect your internal control risk. Be sure to share any new information relating to the following:

• Key management or accounting staff turnover
• Prior year management letter issues, including resolutions
• Known or suspected fraud issues
• Fixed asset changes to be tested
• Significant bad debts or accounts receivable
• Any existing or pending liability issues, including lawsuits or insurance claims
• Mergers, acquisitions, sales, consolidations, or discontinuations
• Significant new business debt
• New contractual arrangements, including leases, loans, and other financing

The above five steps should make your annual audit a more efficient and rewarding experience. In addition, following these guidelines may also help you gain additional insight into and guidance for your regular review of accounting and financial procedures. You may be surprised by how much your efficiency will be improved and how much time and expense you can save by taking the time to plan and prepare ahead.

More than ever before, companies are in need of trusted advisors who can provide fraud detection, internal control reporting, risk management, corporate governance and internal audit services. Daszkal Bolton is privileged to provide these services to our clients. Our audit services team is committed to delivering quality independent, efficient, effective and comprehensive audits. We focus on assuring the quality of your key controls to ensure that you can have complete confidence in the information that you rely on to run your business, and that others rely on to invest in it. If you have any questions about how to best prepare for your year-end audit, please contact us. We can help.

Scott A. Walters, CPA is a Partner in the Audit & Accounting Services Department and is based in our Sunrise office.  He provides expert guidance on matters related to generally accepted accounting principles and SEC rules and regulations.  With a particular focus on the interpretation and practical application of new accounting pronouncements, implementation of Sarbanes-Oxley compliance and SEC reporting requirements, Scott guides public companies to ensure a comprehensive understanding of corporate governance policies and the need for transparent financial reporting.  He provides oversight and coordination of attestation services, and leads the department's international audit engagements.

Scott has specialized in U.S. GAAP compliance and SEC rules and regulations since 1990 when he worked with the United States Securities and Exchange Commission in Washington, D.C.  He provides technical consultations on the application of generally accepted accounting principles for complex and/or structured transactions, including mergers and acquisitions. Scott's concentration has been on serving the investment banking, corporate, capital market, and real estate industries.