Welcome to: Essentials In Preparing For An Audit Presented by: Monique Booker and Pam Gray Knowledge Quality Client Service

Audit Preparation Essentials

Objective of Class To better understand the types of audits and their purposes How to prepare for an audit What to expect during an audit

Items or Questions You Want to Discuss?

what’s an audit?

An Audit is… …a verification process of your company’s financial systems and statements. The auditors merely test and conclude whether the statements are materially correct, and Whether the systems and procedures used to generate the financial information are free from obvious design deficiencies

Types of Audits Financial Statement Audits Single Audit in accordance with Uniform Grant Guidance (UGG) - required for all entities that receive $750,000 or more in Federal Funds ( increased from $500,000)

Single Audits - Effective Dates are Key! Federal Agencies Non-federal entities Implement policies and procedures by promulgating regulations to be effective December 26, 2014 Implement the new administrative requirements and cost principles for all new Federal awards made on or after December 26, 2014, and to incremental funding made after that date Effective for audits of fiscal years beginning on or after December 26, 2014 Not permitted to early implement any of the audit provisions Audit requirements Single Audits - Effective Dates are Key! 8

Highlights of Per OMB 8 Federal regulations into 1 grants management policy guide Eliminates duplicative and conflicting guidance Focuses on performance over compliance for accountability Encourages efficient use of technology Provides for consistent and transparent treatment of cost Limiting allowable cost for the best use of tax payer dollars Strengthen oversight Targeting audit effort on fraud, waste, and abuse 9

Structure of the Regulation Subpart A – Acronyms and Definitions (0-99) Subpart B – General Provisions (100’s) Subpart C – Pre-Federal Award Requirements and Contents of Federal Awards (200’s) Subpart D – Post Federal Award Requirements (300’s) Subpart E – Cost Principles (400’s) Subpart F – Audit Requirements (500’s) Appendices 10

Non Audit Services Review of financial statements Lower level then an audit Involves analytical procedures applied and review of required disclosures Compilation of financial statements Amounts directly from general ledger converted to financial statements 11

An Audit Can be a Beneficial and Positive Experience Should be more than an opinion The audit should be a springboard into more effective management tools and ideas that allow you to make positive changes Through an audit engagement there are typically opportunities for improvement identified. 12

The Auditor’s Role To perform certain procedures and testing to provide sufficient evidence to issue an opinion 13

The Client’s Role To maintain adequate system of controls to prepare financial statements Provide access to information and support documentation for the auditors to obtain the evidence they need to support their opinion Provide representations to the auditors about the information provided during the audit process Make use of the resource provided 14

What Should You Expect in Your Audit? The external auditor is a resource, not an adversary The internal accounting staff and the outside auditing firm should work together to ensure that financial statements are usable, accurate, and timely Identification of areas for improvement A useful set of financial statements 15

Phases of an Audit Planning Process Internal Control Review/Walk Through Process Testing of Controls Financial Closing Process Substantive Testing GAAS Compliance Financial Reporting Wrap Up and Debrief 16

Planning Have an entrance meeting – discuss Current year operations New grants, grants loss Significant personnel changes Prior year audit issues Potential areas of fraud or known fraud occurrences New FASB Pronouncements that may impact your organization 17

New Pronouncements Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities (fiscal years beginning after December 15, 2017; early implementation allowed) Leases (Topic 842) (fiscal years beginning after December 15, 2019; early implementation permitted) Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (annual periods ending after December 15, 2016) Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (fiscal years beginning after December 15, 2018; early implementation permitted) Revenue from Contracts with Customers (annual reporting periods beginning after December 15, 2018)

Planning (continued) Establish dates for the audit to start and end discuss all deadlines Establish a main point of contact for the auditors this individual should not be the sole contact merely a provider of information and contacts Have interim financial statements balance sheet and income statement Have listing of bank accounts and legal counsel used for confirmations 19

Planning (continued) Discuss expectations during the audit process Discuss bookkeeping and operational procedures Discuss status meetings during the audit process 20

Internal Control Reviews/Walkthrough Identification of key processes for the organization Access to process owners for those key processes and notify those process owners of the audit and its importance 21

Internal Control Reviews/Walkthrough Discussion of changes made to internal control processes in current year Documents used and prepared during that process Written process or procedures if available 22

Testing of Controls Provide population for testing i.e. check register, cash receipt log, listing of new grants Pull supporting documentation for items selected for testing i.e. invoices, deposit slips, etc. Explanations for exceptions or strays from established procedures 23

Financial Close Process Excess to personnel responsible for closing the books at year end Share reconciliations and schedules used during closing process Discuss what you do to get comfortable with accounts on the balance sheet and income statement Should get a listing of information the auditor needs for substantive testing after this process 24

Substantive testing Provide the items on the PBC list at the beginning of this process – inevitably, this list will not be all inclusive Discuss specific transactions that occurred during the year that effected certain accounts Reasons for significant variations in accounts Provide additional documents to support account balances or changes 25

GAAS Compliance Assist in getting legal letter confirmations – need prior to sign off Representation letters need to be signed – need prior to issuance – verb able confirmation that representation letter will be signed is needed prior to auditors signing off on the financials (prior to opinion date) 26

Financial reporting Provide information for footnote disclosures Leases for future lease payments Pledge receivable schedule with future payment schedule Functional expense detail 27

Wrap up and debrief Discuss what went well and areas for improvement Obtain draft management letter for validation and discussion Obtain draft of presentation to board of directors which includes the audit results and required communications 28

Must prepare for the audit Preparing for the annual audit will not only assist the auditors but also ensure that you have a better understanding of your job and increase your value to your organization... 29

Ways to Prepare for Your Audit Maintain an audit binder or folder- Maintain all information needed for the audit in one place. It will help make the audit process more efficient and organized. Include items that support the preparation of financial statements and will decrease questions and information requests by the auditor. The schedules and reports should tie directly to the accounting records. This should be done in such a way that one is easily able to see that all accounts in the trial balance have been completely accumulated in the financial statements. The organization of the file should be driven by the financial statement components. For example, the file could be organized in order of assets, liabilities, revenues and expenses. 30

Example audit support includes: Balance sheet and income statement Actual-to-budget and prior-year variances analysis with written explanations for significant variations. Detail make up of each account on the balance sheet and its tie in to the general ledger Cash reconciliations Accounts, grants and pledges receivable schedules and reconciliations Roll forward of property and equipment Debt roll forwards Temporarily and permanently restricted net asset detail and roll forward New lease agreements, debt agreements, any regulatory correspondence 31

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