Auditors will seem to have a never ending appetite for more and more documentation. Due to stricter auditing requirements that have come out of very public past audit failures, the documentation requirements can be a bit daunting. Just because an auditor is requesting more documentation or asking more questions about an area, it does not mean there is a problem in that area. The area could just be considered a higher risk area, that more work is required.
Your auditor should give you a list of documents that they are requesting at the beginning of the engagement. Many auditors call this a “PBC” (Prepared by Client) list. The list will likely be long, so be prepared to spend several hours pulling documentation before the auditors arrive. The more time you spend pulling documentation and having it organized for the auditors, the more quickly they can get through the records. When auditors can get through records more quickly you are able to shorten the time of the audit as well as potentially reduce or keep your fees low.
The initial request lists may have documents such as:
- Trial balance
- General ledger
- Corporate formation documents
- Board of directors minutes
- Copies of any communications with regulatory agencies
- Attorney invoices or summary of ongoing legal matters
- QuickBooks Portable Copy (with admin password and version information)
- Bank statements and reconciliations
- Listing of cash disbursements
- Accounts receivable aging
- Allowance for doubtful accounts calculations or support
- Fixed assets listing
- Copies of any leases
- Inventory records (and a separate inventory observation may need to be performed)
- Accounts payable aging
- Credit card statements
- Debt agreements and statements
- Support for equity transactions
- Revenues by customer
- Revenue recognition policies
- Employee census
- Payroll and human resources documentation
- Vacation policies
- Life insurance agreements
Some of the documents received in the initial request list will need to be sampled by the auditor. The auditor will provide you a sample selection and request supporting details for all of the items on the list.
- Sampling employees, the auditor may request:
- HR file (I-9, W4, new hire checklist)
- Specific time and payroll records (time cards, approvals, pay approvals, payroll reports, etc)
- Sampling revenues, the auditor may request (depending on the type of business):
- Purchase order from customer
- Pick ticket from warehouse
- Shipping documentation
- Invoicing information
- Collections information
- Sampling expenses, the auditor may request(depending on the type of business):
- Internal purchase order and approval
- Vendor quote
- Billing of lading or similar receipt documentation
- Vendor invoice and approval
- Copy of cleared payment check
And More Requests
Once you have provided the auditor this sample support round, there will usually be another round of questions or requests. Those questions are usually related to specific transactions.
Once the audit is in the review stages by managers and partners, audit staff will usually have a few follow up clarification questions for you as well.
Too Many Requests?
If you are unable to keep track of all of the requests from your auditors, sit down with your auditor and ask if there is any way to organize the requests. Some auditors will use an open items or request list that is updated daily that has the status of all open items. There are also new request tracking software options on the market. Let the auditor know if you prefer all of the day’s requests grouped together at the end of the day, or if you would like single requests as they come up, etc. The first year is the hardest year to manage the volume of requests.