Annual audits of a company’s financial statements may be required by partnership, loan or other agreements. The cost of an annual audit can constitute a significant administrative expense, if not properly managed by the company’s financial staff. Although the independent accountant has the responsibility of establishing the scope of the audit required in order for him to issue an opinion on the financial statements, the company can limit the involvement of the independent accountant’s staff, in order to keep the audit fee at appropriate levels. Read below to learn how to control annual audit fees.
1. Meet with the independent accountant at least 90 days prior to the commencement of the audit to discuss changes, if any, in the company’s business since the previous audit. Include in the meeting the audit coordinators (company representative and auditor’s representative), as well as other key participants in the audit.
2. Review problems encountered during the previous audit in order to outline procedures to facilitate a more efficient audit.
3. Review auditor’s audit plan, including a detailed time budget by audit category, in order to establish responsibilities of the auditor’s staff and the company’s staff.
4. Request auditor to provide a schedule of schedules to be prepared by company’s staff (PBCs), including schedule skeletons, which the company should use to provide the data requested by the auditor. If the company routinely prepares similar schedules during the year, or can be system generated, then the auditor should not demand that his format be used – nor should his staff redo the schedule into their format.
5. Agree upon tasks that the company’s staff will perform for the auditor, such as copying documents, typing confirmations, pulling invoices and other required documents, reconciling differences reported on confirmations, etc.
7. If your company requires physical inventory counts, then mutually develop the scope of the physical inventory. This includes what assistance financial staff provides. Document the process in clear and complete count instructions.
8. Reasonably challenge the auditor’s time budget to perform the required scope.
9. Agree upon the timing of the engagement, including completion dates of each specific schedule; then provide them to the auditor.
The company ought to consider the use of a contract employee to supplement company staff with daily routine, or to prepare the PBCs during the audit, if the company staff is not available. Generally, such fees will be considerably lower than the auditor’s hourly fees.
When the auditor’s staff arrives on site to commence the audit hold a meeting with the key participants in the audit to review the agreed upon procedures, discussed above, and to establish any ground rules, such as no additional audit schedules are to be prepared by the auditors unless the company staff has had an opportunity to provide such data.
Regular progress meetings, involving the audit coordinators, to determine that the audit is on schedule, PBCs are being provided on scheduled due dates, and to discuss any problems being encountered. The auditor should discuss any anticipated time overruns. This is critical before time overruns occur to allow for possible corrective action by the company’s staff.
The auditor should discuss each proposed audit adjustment with the company before they are recorded. Record all adjustments recorded by the auditor in the company’s financial records prior to the completion of the audit. The company records should agree to the financial statements to be reported upon by the auditor before their report is finalized.
The company should retain a copy of any schedule provided to the auditor to facilitate preparation of the following year’s audit as many of the schedules may be maintained on a running basis during the year, and may be an important source of data for management.
Determine the nature of the report issued. For example, financial statements prepared in accordance with GAAP include comparative (1) balance sheets, (2) statement of income, (3) statement of owners’ equity, (4) statement of cash flows, and (5) notes to audited financial statements.
Detailed schedules of operating expenses are not required. However, if the company requests it, then include them in the report. Although this report requires certain footnote disclosures, but limit them only to required disclosures.
The independent public accountant’s report upon a company’s financial statements includes the following statements:
“These financial statements are the responsibility of Company X’s management. Our responsibility is to express an opinion on these financial statements based on our audit.” And “ …….as well as evaluating the overall financial statement presentation.”
Hold an audit wrap up meeting to review the final report. Discuss the problems and success encountered during the audit. Also, use this opportunity to lay the basis for the following year’s audit.
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See related article: How to Choose an Independent CPA or Auditor