How to Prepare for a Financial Audit or Review

by QuickBooks

3 min read

    If currently have a business loan or are seeking one out, you’ll probably be required to obtain either an annual financial review or audit from a CPA firm. Like a tax audit, the purpose of financial audits and financial reviews is to verify that you’re reporting your financial information correctly. Getting a financial audit or a review from a CPA firm can be a nerve-wracking — and expensive — experience. With some planning, however, you can get the process over with quickly and save money along the way.

    What to Expect

    During a financial review, the CPA firm’s staff will check that your financial information is complete and consistent. Staffers will use analytical procedures to ensure your financial results make sense. If they don’t understand why balances have changed, for example, they’ll investigate the issue and ask you about it.

    A financial audit is similar to a financial review except that staffers will also perform audit sampling. Staff will examine certain transactions and ask you for supporting documentation to make sure information is recorded properly. The firm’s staff may also analyze operational procedures and your information security standards to make sure your accounting data is trustworthy.

    Keeping Costs Down

    Audits and reviews aren’t cheap. The Wall Street Journal estimates that a small-business audit ranges between $5,000 and $75,000 — and reviews typically cost half that amount. What drives up the cost of these services is the amount of hours the accounting firm has to spend to ensure that your financial information is correct. A good firm will save you money by handing off basic tasks to entry-level employees, but even junior staffers typically bill out at over $100 an hour. If you can reduce the number of hours the firm has to put in to complete the service, you could potentially reduce your audit or review fee by thousands of dollars.

    Start Preparing Early

    By implementing good practices all year long, you can save yourself and your CPA firm from wasting time later on. If you’re not reconciling information on a regular basis, errors compound and it becomes harder to find the source of a problem. Sarah Wine, a CPA at Clark Number CPA firm, recommends reconciling your bank accounts on a monthly or quarterly basis. If you’re getting an audit, she also urges companies to consistently document revenue and expense activities all year long. It can delay an audit if you have to scramble to find documentation for a sample transaction because you didn’t keep adequate records.

    Answer Questions Before They’re Asked

    Review your financial information before the CPA firm comes in, and ask yourself if the numbers look right. Financial consulting firm MorganFranklin [PDF] points out that if the numbers don’t make sense to you as the business owner, they certainly won’t make sense to your auditors. When financial figures don’t add up as expected, auditors and reviewers have to spend more time researching what caused the discrepancy. Instead of waiting for someone from your CPA firm to come to you, save everyone time by explaining any odd figures or fluctuations upfront.

    Have Paperwork Ready

    Early in the audit or review process, the CPA firm will request a list of documents and schedules from you. It’s all information that you, your bookkeeper, or your accounting staff can generate using your accounting software. It’s important to have this documentation prepared correctly by the firm’s deadline. If the schedules are inaccurate, incomplete, or disorganized, the firm has to spend extra time sorting through the paperwork and emailing your staff to get the right information.

    It’s helpful to send data in a file type that the CPAs can easily manipulate. For example, it’s time-consuming for a staffer to cut and paste numbers from a PDF file back into an Excel spreadsheet. CPA firm Dulin, Ward & DeWald recommends asking your CPA firm what file type they want you to use before you send them files.

    Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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