There are many companies who have been operating in the industry for a long time but they have never gone through an audit. Similarly, the companies who are about to go public; should get their audit done properly. At such times, the auditors need a plethora of information. Thus, it is better to be prepared beforehand with all the crucial information rather than running from pillar to post later. We have listed a few things which you might require if you are getting your first audit done.
General ledger: A general ledger is the accounting system which records all balances of the accounts and the modifications in the balance of funds. There are many companies which use the QuickBooks software. The software is customized according to the needs of every industry to manage inventory, payroll, sales, and many other needs of small scale businesses. You can conveniently export the general ledger from QuickBooks to Excel. Alternatively, you can send a backup duplicate of the QuickBooks to your auditor. By seeing your general ledger, your auditor will get a clear picture of the activity they are going to audit.
Trial balance: A trial balance is the report listing the closing balance of every account at the end of the accounting period. Your total debit balance should be equal to the total credit balance. It is maintained to ensure that there are no unbalanced entries left in the system of accounting. The numbers from your financial statements can be reproduced back to your trial balance. It is an important document for the auditor. You can also extract the trial balance from your accounting software or QuickBooks. You should extract this document as an excel sheet so that the auditor can copy it straightaway into the portion of trial balance of their software of electronic work paper. Also, do not forget to turn on the feature of account number. The auditors typically ask for a trial balance when they initiate an audit to transfer the balance of the accounts to their software of auditing.
Copies of leases, loans and contracts of land material:You must disclose all material facts relating to leases, loans and all contracts of land materials. The copies must be sent to the auditor so that he can ensure that the disclosure you made are accurate and complete. For instance, the accounting standards require you to disclose your payments of lease for the coming years and the expected payments of sublease, if any. If there are any lease expenses, they must also be presented. Material contracts can cover long-term agreements with customers or suppliers, employment contracts, or buying and selling agreements.
Loan statements:If you are going to make your company public, you might have a debt on the company. You must furnish this information to the auditors so that they can confirm your debts with your creditors. You can provide a current statement of your loan to the auditor to ease the process of confirmation.
A list of all new purchases of fixed assets with invoices:It is a very common practice to furnish the details of any significant purchases of fixed assets before the initial period, for which the audit is being done. It is better that you provide the invoices also.
Schedule of depreciation: If you didn’t get your financial statements prepared according to the GAAP (Generally Accepted Accounting Principles), but you have filed for tax returns, it is likely that the schedules of your depreciation are on the basis of tax only. But, if your schedules of depreciation are maintained in a software program of fixed assets, it becomes easier to compute depreciation according to GAAP.
The auditors need to read the minutes of all board meetings since they consist of crucial information concerning financial statements. You might be required to state the fact in the representation letter given to the auditor that all the minutes have been provided by you. Thus, it is better that you gather them beforehand.
Payroll reports:Not all companies have employees. But, if you have engaged employees, your auditors would like to see the payroll of your company. This way, they can also look for any unrecorded liabilities of payroll taxes.
Subscription to stocks and agreements of stock options: Many business ventures have the agreements to issue stocks to existing stockholders, key investors and employees. You need to furnish this information so that the auditor can verify the disclosures and determine the expense of stock option.
Contact information of agents of stock transfer and attorneys, if any:As per your auditor’s instruction, you might have to send formal letters to attorneys inquiring for description of the provided services and the issues that are being represented by them. You must also disclose contingencies concerning legal actions, if any. The auditor also needs to procure information from the agent of stocks transfer.
Copies of agreements of merger, even if they are pending:Many companies become a public enterprise by the process of a reverse merger. Such things play a major role in affecting your presentation of financial statements.
By-laws and Incorporation articles:You must disclose the number of issued/outstanding/authorized shares. A portion of this statistics is there in your incorporation articles. By-laws also have some data which has to be disclosed.
A complete list of all bank names in which you hold an account, account numbers along with the authorized signatories: The auditor needs to verify the bank balance with the balance sheet on different dates. You must furnish accurate information about your bank details along with the authorized signatories.
BHATIA & CO, INC, CPAs