You know that this year it’s essential that your company get a financial statement audit done, but just how long is it going to take, and what does it actually mean to have one done? Let’s break down each of the major steps below, along with the milestones that are accomplished in each part.
Of course, no two audits are exactly the same, and the time they take depends on your industry, the size of your company, and other factors. But by making sure you and your team are well-prepared and know what a typical audit looks like, you’ll be able to prevent delays, and get your business back to running as normal as soon as possible.
Week 1: Planning and preparation
The audit team will spend this time planning the mechanics of the audit. You should have an engagement letter from the auditing firm laying out its duties and responsibilities, as well as the scope, objectives, and approach it will take during the audit. At this point you should double-check you have appointed someone at your company who can be the auditors’ main point of contact. Make sure it’s someone who is reliable, who knows how to get things done, who has deep knowledge of the company, and who will be able to fit this role into the rest of their ongoing responsibilities for the next six weeks or so.
- Establishing details (number of auditors, audit location, and deadlines, both internal and external).
- Setting up the main point of contact, and explaining the responsibilities to that contact.
- Introductions made, and expectations set.
Weeks 2 to 4: Testing Procedures
The auditors spend this time looking over and testing the documents they asked for on their “prepared/provided by client” (PBC) list: they are items like cash reconciliations and the complete general ledger for the audit period. To help ensure the accuracy of documents, the auditors may also ask for additional supporting documents, such as bank statements and invoices. At this point, if there are any transactions that appear not to have been classified correctly, the auditors will seek to understand what has caused the discrepancy and ask for additional documents.
- Examining all the documents in the PBC list, sampling transactions to help determine their overall accuracy.
- Asking for any additional documents required to get a fuller picture of the business and to verify the accuracy of the PBC documents. These additional documents might include contracts, invoices, and bank statements.
- Additional requests, such as investigating inventory, plant locations, and other physical aspects of the company.
- Creating a list of apparent discrepancies; working to resolve them with the client.
Weeks 5 to 6: Reporting
This period is for wrapping up any loose ends and for auditors to issue their final audit option. The auditors will likely also issue communication letters discussing audit methods, scope, and any findings, which may include advice about suggested improvements to internal controls procedures and methods for the future.
Please note that a tax provision, which includes an estimation of income taxes, can’t be done until the very end and will also require more time. Be sure to tell your auditors if you want this as part of your earliest discussions.
- Consultations with clients, requesting additional documentation, and doing whatever else is required to deal with any outstanding issues.
- Auditors issue final audit opinion and financial statements.
- Auditors issue communication letter summarizing audit methods, scope, and findings, along with advice for the company in the future.
- Tax provision issued, if requested.
Although this timeline implies that an audit takes about a month and a half, many variables can extend that. For instance, multiple rounds of questions and changes will require more time. And keep in mind that first-time audits take longer than any that follow, because as with any complicated procedure, there is a learning curve.
If the idea of fitting an audit into the busy year ahead fills you with a bit of apprehension, let us help you figure out more about the best way to approach one, so that you are well-prepared and that it goes as smoothly as possible. Holtzman has earned a strong reputation for delivering independent audit services in a customized, risk-based manner to help our clients achieve their financial objectives and strengthen their business value. We perform independent financial statement audits for a wide range of industries and company sizes in accordance with the professional standards established by the American Institute of Certified Public Accountants. Learn about our full suite of Audit & Assurance services and get in touch today!