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

2. Audit Preparation Essentials

3. 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

4. Items or Questions You Want to Discuss?

5. what’s an audit?

6. 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

7. 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)

8. 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

9. 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

10. 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

11. 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

12. 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

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

14. 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

15. 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

16. 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

17. 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

18. 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 ): 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)

19. 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

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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

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

28. 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

29. 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

30. 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

31. 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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