Do you bite your nails before your nonprofit's external audit each year? Here are five tips for making the audit experience run more smoothly for you and your auditors.
1. Be Ready
Ask your auditor for a list of items they’ll need during the audit, with deadlines for each item, if such a list isn’t provided automatically. Talk to your auditor before the fieldwork if you have questions about any of the items, and let your auditor know right away if you won’t be ready by the agreed-upon dates.
Because surprise is a required element in the audit, you’ll also need to produce some information on the spot, such as specific expense reports, journal entry support, or grantor or program reports. But you can still prepare by establishing files during the year to collect the information you may need.
2. Have Realistic Expectations
Your expectations of the audit should mirror your contract with the auditing firm. It will spell out what the audit will accomplish and your responsibilities.
Auditors once did accounting “clean-up” work for their clients during the audit, such as preparing year end journal entries, fixed asset schedules, and various prepaid expense and accrued liability analyses. But today’s professional standards draw a clear line between accounting and auditing services, and your auditor must stay independent of your accounting processes.
If there are accounting tasks you can’t do internally due to a lack of expertise, consider hiring a different firm to handle them. But if you’re fully capable and “own” the process, you can engage your audit firm to assist with certain analysis and adjustment information outside of the audit.
3. Minimize your Risks Year-Round
Draft and review your accounting and procedures manual. Self-assess inherent internal control weaknesses and determine the necessary internal controls to mitigate such weaknesses. Periodically ascertain whether your organization’s policies and procedures are being followed.
If your operations have changed or evolved, discuss these developments with your auditor during the year and update your policies and procedures accordingly. Waiting until fieldwork begins can delay the audit process.
4. Be Prepared to Deal with any Control Deficiencies
Your auditor will apply risk standards during the audit. AICPA Statement on Auditing Standards No. 115, Communicating Internal Control Related Matters Identified in an Audit (SAS 115), defines deficiencies in internal control and other “material weaknesses” and “significant deficiencies.”
The auditor, for example, will look to see if there’s:
June 15, 2012