Checklist: 10 Ways to Streamline Your Next Financial Audit
Financial Audit season is coming to its much-anticipated close and you’re likely in vacation planning mode, ready to kick your feet up with a cool Mai Tai in hand. With your audit now in the rearview mirror, there’s no time like the present to improve your audit process next go around.
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Here’s a helpful audit checklist to follow to improve your process for next time:
- Unify revenue recognition policies: Establish a consistent and uniform policy for revenue recognition that aligns with accounting standards and is suitable for all lines of business — mobile phones, service subscriptions, and accessories. This policy should consider conditions like tangible goods shipment, service subscription duration, and customer interactions like cancellations, upgrades, and disputes.
- Consolidate data sources: Implement a comprehensive system to consolidate data from different operational systems and payment providers. This system should be capable of providing detailed, transaction-level data in real-time to eliminate inconsistencies arising from delayed or inadequate information.
- Implement detailed transaction tracking: Upgrade the accounting system to capture detailed, transaction-level data. This will ensure every financial figure can be traced back to a specific transaction, facilitating accurate revenue recognition and providing a complete audit trail.
- Create thorough documentation: Make it a company-wide policy to maintain thorough documentation for every transaction. This should include invoices, receipts, purchase orders, customer contracts, and other documents that evidence a transaction. Regularly review and update this documentation to ensure it remains complete and accurate.
- Reconcile regularly: Implement a process for regularly reconciling the financial records with the underlying transaction data. This will help detect and rectify any discrepancies or inconsistencies on a timely basis, preventing them from accumulating over time.
- Implement consistent inventory accounting: Decide on a single method for valuing inventory (FIFO, LIFO, etc.) and apply it consistently across all product lines. Ensure this method is appropriately integrated into the accounting system to accurately track inventory costs.
- Standardize depreciation methods: Choose a standard depreciation method for fixed assets and apply it uniformly. This will eliminate inconsistencies in the depreciation of assets over time.
- Unify expense recognition policies: Implement a consistent policy for recognizing expenses, particularly with respect to capitalizing or expensing costs related to fixed assets. Ensure the policy adheres to accounting standards and aligns with the company’s operational practices.
- Consolidate intercompany transaction handling: Standardize the handling of intercompany transactions to eliminate inconsistencies in recording intercompany loans, transfer pricing, and allocation of shared costs.
- Conduct pre-audit reviews: Conduct a comprehensive review of the financial records before the audit. This internal review should identify and rectify potential issues before the auditors begin their work, making the audit process smoother and more efficient.
By following this checklist, you’ll be in a much stronger position to handle next year’s financial audit. Your team will also reap the benefits of improved financial management and more informed decision-making throughout the year. Consider this your ticket to starting your vacation a bit earlier next year!