© 2008 Smart Business Network Inc. Reprinted from the November issue of Smart Business Houston.

Insights Accounting

Insights Accounting is brought to you by Briggs & Veselka Co.

A s another year is winding down, mostpeople are taking the time to reflecton the ups and downs of the past

year, while tying up any loose ends andmaking preparations for the year ahead.

Business is no different, and right aboutnow, many companies are preparing fortheir year-end audits. Unlike personalreflections, however, for many businesses,a corporate audit is mandatory.

A number of setbacks and hindrancescan delay or derail an audit process, socompanies need to be properly primed andprepared for issues that may arise.

“The end of the year is hectic for allorganizations, but taking time to plan andprepare for your internal year-end closingand external audit process will pay hugedividends,” says Meresa Morgan, an auditshareholder at Briggs & Veselka Co. “Youneed to be fully prepared for any and allaspects of the audit.”

Financial audits exist to add credibility tothe implied assertion that your organiza-tion’s financial statements fairly representyour financial position to stakeholders andcreditors. A financial audit is an importantstep in providing a level of assurance notonly to your shareholders and creditors,but also to regulators, customers, suppliersand employees. Because of the signifi-cance of an audit, some companies mayhire consultants to help ensure that theyare prepared and that records are in prop-er order.

Smart Business spoke with Morganabout year-end audits and how your com-pany can be adequately prepared for them.

What’s involved in a year-end audit, and whydoes it have to be done?

Many organizations — public, private andnonprofit — are required to have a year-end audit. The requirement may beimposed by various regulators, financialinstitutions, investors, board of directors,grantors, etc., and is usually required to beperformed by an independent certifiedpublic accountant. In most instances, thereis also a deadline imposed for completionof the audit, which usually ranges from 90to 120 days after year-end.

What are the first steps a company must takewhen preparing for a year-end audit?

In an effort to expedite the audit to meetthese deadlines, some audit proceduresmay be performed prior to year-end. If thecompany has a sufficient accountingdepartment and has internal controlprocesses that have been documented andimplemented, the audit firm can test thesecontrols by performing interim audit pro-cedures. Also, if the company has invento-ry, cycle counts and reconciliations may beperformed during the year, versus at year-end. Interim procedures can be especiallyimportant if the company’s audited finan-cial statements are due within 90 days afteryear-end.

The following steps should make the auditprocess more efficient and less costly:

■ Document existing controls andensure that they are implemented as docu-mented.

■ Review prior year recommendationsmade by the audit firm to ensure any sig-nificant weaknesses have been addressed.

■ Meet with your auditor prior to year-end to discuss any significant issues or sig-nificant changes in management or in thecompany’s financial statements.

■ Notify your auditor if the company isnot in compliance with credit agreementcovenants.

■ If not automatically provided, requestfrom your auditor a list of items you willneed to have available for him or her toperform the audit. Then, have all requesteddocuments available when the auditorarrives for fieldwork and preferably in anelectronic format.

■ Reconcile and document support forall balance sheet accounts prior to the startof the audit.

■ Make sure management is availableand involved in the auditing process. Also,an exit conference at the end of fieldworkis beneficial for both the company and theauditor.

■ Take responsibility for drafting thefinancial statements, including requireddisclosures.

What are the consequences a company facesif it doesn’t perform year-end audits?

If the company were unable to meet thedue date requirements imposed by a finan-cial institution, they would most likely fallinto default of their loan covenants andwould need to request a waiver from thatparticular lender.

Should a company seek assistance in prepar-ing for a year-end audit?

Some companies that feel they areunable to perform the steps above or thathave staffing concerns will hire consult-ants to assist them in preparing for a year-end audit. While that is definitely an alter-native solution, it is important for manage-ment to maintain responsibility for the per-formance of the consultant and for theintegrity of the financial statements. <<

Meresa MorganAudit shareholderBriggs & Veselka Co.

MERESA MORGAN is an audit shareholder at Briggs & Veselka Co. Reach her at (713) 667-9147 or mmorgan@bvccpa.com.

How to prepare for a year-end audit Interviewed by Troy Sympson

Be prepared