Preparing for Your Financial Statement Audit: A Practical PBC Guide

Preparing for a financial statement audit doesn't have to be overwhelming. A well-organized Prepared by Client (PBC) checklist can reduce follow-up requests, minimize disruptions, and help keep your audit on schedule.

While every audit is different, here are a few key areas to focus on before fieldwork begins.

1. Finalize and Reconcile Your Books

Before providing information to your auditors, make sure your accounting records are as close to final as possible. At a minimum, consider completing:

• Bank and credit card reconciliations

• Accounts receivable and payable reconciliations

• Payroll and payroll liability reconciliations

• Fixed asset and depreciation schedules

• Prepaid, accrual, debt, lease, and investment schedules

• Net asset / equity roll forward

• Schedule of restricted net assets for nonprofits

Most importantly, confirm that your supporting schedules agree to the final general ledger and trial balance.

Confirm that prior-year audit adjustments have been properly recorded and review the current-year trial balance for unusual, duplicate, or stale balances.

2. Gather Core Reports and Supporting Documentation

Having key accounting reports ready at the start of the audit can reduce delays and follow-up requests. Common requests include:

• Final trial balance and general ledger

• Year-end financial statements

• A/R and A/P aging reports

• Bank statements and reconciliations

• Fixed asset schedules

• Payroll reports

You should also organize supporting documentation for significant balances and transactions, such as invoices, contracts, subsequent payments or receipts, loan agreements, and lease agreements.

Whenever possible, provide reports in Excel or another searchable electronic format to make audit testing more efficient.

3. Organize Revenue Agreements

Revenue is often a significant audit area. Depending on your organization, auditors may request customer contracts, invoices, grant agreements, award letters, donor documentation, reimbursement requests, and deferred revenue schedules.

For nonprofits, complete grant and contribution agreements are especially important because the terms of an agreement may affect whether and when revenue is recognized and whether the resulting net assets are subject to donor restrictions.

4. Gather Organizational Documents

Be prepared to provide documents outside of the accounting system, including:

• Board and committee minutes

• Significant contracts and agreements

• Debt and lease agreements

• Legal correspondence

• Related-party information

• New and updated accounting policies

Also communicate significant changes in management, operations, financing, programs, accounting systems, or internal controls.

5. Prepare for Confirmations and Subsequent Events

Auditors may independently confirm bank accounts, investments, loans, receivables, legal matters, or significant contributions. Having accurate contact and account information available early can help avoid delays.

You should also notify your auditors of significant events occurring after year-end, such as new financing, litigation, major contracts, loss of significant funding, key personnel changes, or organizational restructuring.

Preparation Makes a Difference

Before fieldwork begins, ask yourself: Are our books final? Are significant accounts reconciled? Do our schedules agree to the general ledger? Are important agreements organized? Can we easily locate support for significant transactions?

A successful audit is a collaborative process. At Bilotta & Company, CPAs, LLC, we work with our clients to establish clear expectations, identify potential issues early, and keep the audit moving efficiently.

A little preparation before fieldwork can mean fewer follow-up requests, fewer interruptions, and a smoother audit for everyone involved.

Need help preparing for your audit? Reach out to us here for help.