Every experienced auditor has come across a messy file. One that comes to mind that I managed involved hundreds of documents coming in from around the globe, all in different languages, currencies, and in an un-searchable JPEG format. A finance liaison in the organization handed our team a USB key with all the documents we had requested- this is the moment when four days of fieldwork turns into well over two weeks.
Much like our liaison in the organization, you may be thinking, “So what if my documents are not organized? I am providing you with the information the auditors asked for.” This is the wrong mentality to have. Disorganization will rack up those chargeable hours and you better be sitting down when the bill comes for your audited statements.
5 To-Dos Before the Auditor Arrives at the Door:
1. Make a Master List
An experienced auditor will always provide a master list of the documents they will be looking for, both in general terms (i.e. internal working papers) and then more specifically for individual source documents. When the sample of documents is sent your way, take some time to attach a reference number to each item. Print out this list as a Master Copy for the auditor to follow. If there are any unusual occurrences or follow-up information regarding a specific item on the list, this is a great opportunity to write a brief comment on the matter.
2. Naming Conventions
Take the master list one step further by naming all of the documents with the same reference number as the master list. For example, if the auditor wants to see the invoice, expense claims, and cancelled cheque for one item, either merge them into one document or save them in the same folder. Be sure to refer to them in the file name as their reference number. There are many permutations when it comes to a level of organization, so long as it is simple to follow, an auditor will be content.
3. Reconcile Documents
Referencing back to the aforementioned messy file– foreign currencies, multiple languages, and multiple source documents supporting one sample item – the lack of reconciliation made the documents near impossible to follow. In any case where there is more than one supporting document, take the time to make a cover sheet that lists out the amounts on each invoice and acts as a table of contents for the reconciling items.
If foreign currencies are apparent on any invoices, have your reconciliation clearly show the amount on the invoice, the exchange rate that was used, as well the amount in your reporting currency displayed. Bonus points if you provide supporting documents for the exchange rate chosen.
4. User Friendliness
User friendliness brings all the above points together. The goal is to make everything as clear as possible to the auditor. The more the auditor knows, the smoother the audit will run, the fewer times the auditor will come see you for clarification, and the faster we will finish the file and get you the final financial statements.
5. Be Proactive
Ask the auditor ahead of time what documents they are looking for. Having everything prepared and organized in advance of the auditor showing up makes for a smooth audit. As mentioned in my prior posts, having an open dialogue with the auditor will make the whole process much more efficient.
Author:
Matthew Blostein, CPA, CA
