A good year-end close ensures financial accuracy, compliance, and reliable reporting, providing a clear picture of the organization’s performance. It’s also the cornerstone for achieving audit readiness. A solid year-end close sets the stage for a smooth and efficient audit process. In this article, we are highlighting the key steps for your year-end close as well as sharing practical tips for a successful audit, and the most common pitfalls to avoid.
How to Prepare for the Year-End Close
Key components of a strong year-end close include:
- Ensure compliance with GAAP – essential for ensuring accuracy, consistency, and transparency in financial reporting.
- Reconcile all asset and liability accounts – perform additional procedures to assess leases, fixed assets and inventory for proper valuation at year-end.
- Reconcile major revenue/expense accounts – investigate unusual activity, changes year over year and against budget.
- Review transactions around year end for proper cut off and record necessary accruals.
- Identify and implement new accounting standards.
- Review financials for accuracy, ensure proper review and approval and compliance with grantor requirements.
- Analyze transactions subsequent to year-end.
The Link Between Year-End Close and Audit Readiness
A successful year-end close sets the foundation for a smooth audit by addressing potential issues proactively. With accurate financial statements, reconciled accounts, and complete documentation, your organization is better prepared for an efficient and effective audit process.
Top Tips for a Successful Audit
A successful audit is built on preparation and clear communication. Use these tips to streamline your audit:
- Reconcile: Reconcile accounts, review any variances or unexpected results, prepare schedules and make any final adjustments before the audit starts.
- Review: Review the audit and tax PBC list and discuss areas of concern with your auditor in advance of the audit commencing.
- Verify: Verify timely submission of reports and document internal controls to ensure the reports were submitted in accordance with the terms of the agreements.
- Update: Update process memos and accounting manuals as needed.
Common Audit Mistakes to Avoid
Even the most prepared organizations can stumble into audit pitfalls. Here are common mistakes that can prolong the audit process costing you time and money.
- Lack of preparedness: Still making adjustments and preparing schedules once the audit starts.
- Missing documentation: Scrambling to locate documents such as contribution & grant letters, agreements, etc.
- Inadequate documentation: Insufficient or disorganized documentation is a common issue. Remember, if it isn’t documented it was not done!
- Weak internal controls: Failing to establish and enforce robust internal controls can result in audit findings. A common mistake we see is inappropriate access for terminated employees.
- Schedule of federal expenditures: Including fixed price contracts on the Schedule or missing contracts that should be included.
- UG Time sheet reporting on budgeted amounts: Not providing timesheets to support time charged to a program. Time should be reported contemporaneously and reviewed and approved by someone who is familiar with the agreement before time is charged to the program.
Take the time to close with confidence, and your next audit will be smoother, more efficient, and far less daunting. If we can be of assistance reach out to us at Han Group.
