Three Key Planning Steps to Get a Head Start on Your Next Audit

With disruptions from COVID-19 continuing into the foreseeable future, it is best to start planning for your next year-end financial statement audit early. Odds are that your next audit experience will be different than your last one due to the many programmatic and operational changes that most nonprofits have experienced this year. Investing some extra time in front-end logistical planning will lead to smoother sailing and better outcomes.

I recommend focusing your front-end audit planning tactical efforts on three key steps: (1) schedule an early outreach meeting with the members of your independent audit services team; (2) have additional front-end communications with your audit committee; and (3) review and update your accounting policies and procedures manual before the fiscal year-end.

The key here is getting started on the audit preparation and planning process earlier than in past years. These front-end efforts will yield big results and improve the transition to new remote working and audit services environments.

Step #1 – Schedule an early outreach meeting with the members of your independent audit services team.

This action will help both your organization and your audit firm. This step is most effective if you schedule the early outreach meeting prior to fiscal year-end. Just the act of reaching out early informs your audit team members that you are serious about being ready for a smooth audit. Confidence and trust will immediately rise.

This is your best opportunity to share with the audit team how your organization pivoted to adjust to the disruptions caused by COVID-19, including changes in the scope and delivery of your programs and operational changes such as remote working. Even if your last audit was completed during the early stages of COVID-19, this will be your first audit where these pandemic-related changes will be seen on a transactional basis by your auditors.

Finally, listen carefully to how your auditors have adapted to remote auditing and how their audit procedures, requests for information, access to exchange portals and timeline have changed so you can be in the best position to respond timely to auditor requests.

Step #2 – Have additional front-end communications with your audit committee.

In this uncertain environment, extra communications with your audit committee will be appreciated and beneficial. I have found it helpful to plan an additional audit committee meeting prior to the end of the fiscal year just to discuss the impacts of COVID-19 and how it has changed their roles and responsibilities as audit committee members. The biggest changes have been mostly due to different auditor communication channels (portals, emails, and other secure communication methods). Also, timelines have been affected by the disappearance of in-person auditor fieldwork. This has had ripple effects such as pushing risk assessment and audit planning meetings earlier and requiring additional in-process auditor meetings to get updates and share information.

Step #3 – Review and update your accounting policies and procedures manual before the fiscal year-end.

This proactive step will pay many dividends. Prior to the end of your current fiscal year, make sure to review your accounting policies and procedures manual to reflect any changes made to internal accounting control systems (“IACS”) as a result of shifting to virtual programs and meetings and remote working. These changes should also include any IACS enhancements made to counter new and increased risks evolving from changed operations forced by COVID-19. Finally, consider adding a separate section for temporary IACS procedures that are expected to change back as you return to in-person office work or a hybrid of in-office and remote work.

Your auditors will appreciate these efforts. It will save the time and potential cost related to additional testing and having to document IACS-related findings for operational differences compared to documented procedures.

Planning Tip – Add a new required procedure to do an annual review of your accounting policies and procedures manual during the fiscal 4th quarter. Post appropriate additions, edits and explanations, including adding a “last updated” date to page-one to show that the accounting policies and procedures manual has been updated and is current. Many accounting policies and procedures manuals suffer from going multiple years without updates.

These three early audit planning steps will have a positive impact on your next audit that will pay multiple dividends. Update your finance calendar to include these three front-end audit planning steps so this window of opportunity will not be missed.