A company’s financial operations and stakeholders are exposed to stakeholders through the complex regulatory procedure of an audit. An audit does not have to be a stressful event for lean finance teams, but it may be. A seamless procedure depends on thorough audit preparation. Continue reading for helpful guidance that might help your company and staff in Michigan to prepare for an audit effectively. For more information, contact Michigan outsourced accounting services.
Strategies for your company and employees for your company audit
An audit is an extensive review of a business’s financial records carried out by a neutral third party to verify that they are legitimate and in accordance with GAAP. A well-prepared audit ensures that your company’s audit goes well and allows it to demonstrate to stakeholders the value and financial health of your organization. Audits could reveal new efficiencies to enhance operations in addition to guaranteeing a company’s financial stability.
Why do Businesses do Audits?
Making sure a company is accurately and truthfully reporting its financial performance is the primary objective of an audit. Business audits take place for a number of reasons, such as:
- Regulatory requirements
To ensure that investors have access to correct information, the SEC mandates regular audits of public company filings. After companies like Enron damaged public confidence in the financial markets with false reports, SOX compliance was put into effect to restore that trust.
- Tax purposes
For tax purposes, a company’s tax return may be audited by the IRS. The IRS chooses which businesses to audit at random; thus, being selected for an audit does not always mean that there is a tax problem. Additionally, if a partner or shareholder is also being audited, the business may also be audited.
- Requirements for lenders and investors:
Before granting a loan or credit, external lenders such as banks usually want audited financial accounts. Furthermore, some investors request an audit.
Important Details Needed for an Audit
A neutral third party thoroughly examines and analyzes the company’s accounting records as part of an audit. Information technology (IT) and staff members, especially those in the accounting and finance divisions, will gather and present the required accounting documentation. In order to properly get ready for an audit, all of the company’s accounts’ supporting documentation must be collected, along with the required paperwork, such as an unadjusted trial balance.
- All year-end AR and AP aging report manual and automatic entry adjustments
- Financial statements prepared by the client
- Report on closing journal entries
- Bank Reconciliations
- deferred revenue schedule
- Debt schedule
- Equity roll forward
- The depreciation calculation schedule and the fixed asset registry
- General ledger
- Schedule of lease rent (including deferred rent)
- Report on monthly revenue
What Happens If the Company Is Not Ready?
Given the amount of statements and schedules to provide, it is essential that time and attention be given to audit preparation. Preparation may take weeks or even months, according to the size and scope of your business, but it is essential. Insufficient planning for a business audit can have serious consequences for the organization and its staff.
For example, with a small financial team of only two to three people, AVIA had to get ready for an annual audit. The workload become enormous due to a rise in projects, priorities, and unexpected staff turnover.
How to Help Your Company and Employees Get Ready for an Audit
Since an audit is a business venture in and of itself, it requires time, money, and a plan. Even if the finance department is the most involved, every employee should be aware of and understand the audit process because their own workload may need to rise as their coworkers get ready.
