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How to Make Your Auditor Smile (Or Getting Organized for Your Audit)

Most financial staff members do not look forward to their annual financial audit.  I have met an exception to this, however, and here was her method for going into the audit feeling comfortable and confident.  Let’s refer to this individual as Sally.

Sally began her audit preparation by using her normal monthly closing procedures which consisted of the following:

1) Recording all revenues and expenses/expenditures that occurred during the period.
2) Reconciling all cash and investment accounts.
3) Recording all accruals for revenues and expenditures for items for which the entity earned/incurred during the year but had payment had not been received or invoices were not received prior to fiscal year end.
4) Recording monthly items such as depreciation.

Sally then followed her annual closing procedures for recording items not tracked on a monthly basis, such as:

5) Capitalization of expenses for which the entity receives a longer than one year benefit and which also meet capitalization thresholds.
6) Accruing compensated absences.
7) Accruing wages earned by employees during the fiscal/calendar period but paid after the fiscal/calendar year-end.

At that point, Sally would run a trial balance and scan her general ledger accounts for misclassifications, omissions, or errors. She would analyze certain costs like payroll and benefits and repairs and maintenance to ensure that the amounts were reasonable and that capital items had been reclassified to capital accounts.

Sally’s final step to prepare for the audit was to compile a binder with the following:

A) Summary sheet of all rates charged by the Districts for commodities such as power, water, sewer fees, availability fees, and any other customer charges whose rates are determined by the Board and may change.
B) Entity financial statements (Balance Sheet and Profit and Loss Statement).
C) Complete trial balance
D) Adopted budget.
E) Divided tabs for each major section of the Balance Sheet and Income Statement.
1) Within each tab, a summary of each account balance followed by any reconciliation required to follow the activity between the support (such as the final month’s bank statement, capital asset acquisition and disposition reports, etc.) and the trial balance amount.
2) Any outside source statements supporting either the balance or the reconciliation (bank statements, investment statements, County Treasurer property tax balances at FYE, property tax levies, depreciation schedule, etc.)
3) Any spreadsheets or analyses prepared by Sally or her staff would help explain unusual items, significant variances from the prior year, or from budgeted amounts.

Once the notebook was complete, Sally would create an entire general ledger (either printed or in pdf format) for the auditors. Other than ensuring that space was reserved for the auditors and staff members were available for the auditors, Sally was able to go on with her normal routine, confident that she had done her part to properly prepare for the audit. She was happy, relaxed and a pleasure to work with. And yes, upon arrival, her auditors never failed to smile. Surely we can all benefit from Sally’s attitude of “Be Prepared.”

Our professionals have many years of experience working with the government industry. If you have about audit preparation, don’t hesitate to contact a Henry+Horne professional adviser.

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