Audit preparation checklist: getting your books ready for an auditor

Know which audit you face

Three kinds of audit reach small and mid-size businesses, and each asks for different records.

• Financial statement audit: usually required by a lender, investor or buyer. An independent CPA firm tests your records and gives an opinion.
• Employee benefit plan audit: for 401(k) and similar plans that file Form 5500 as large plans.
• Sales tax audit: a state checks that you collected and paid the right tax on what you sold.

The schedules auditors ask for

Auditors send a list of what they need, often called a PBC list, for 'prepared by client'. Having these ready before fieldwork starts is what makes an audit shorter and cheaper.

• Bank reconciliations for every account at year end, tied to the statements
• Accounts receivable and accounts payable aging at year end
• Fixed asset register with additions, disposals and depreciation
• Loan schedules with balances, interest and the lender's statements
• Accrued expenses and prepaid expenses, with support
• Payroll reports reconciled to the general ledger and quarterly filings
• Revenue detail and major contracts
• A trial balance and general ledger for the year

401(k) plan audits

Plans that file Form 5500 as large plans must attach the report of an independent qualified public accountant; plans with fewer than 100 participants generally file as small plans and can be exempt. Form 5500 is due the last day of the seventh month after the plan year ends, July 31 for calendar-year plans, and Form 5558 gives a one-time extension of up to two and a half months.

Plan auditors ask for the plan document, participant census data, payroll records, and proof that employee deferrals reached the plan on time. Those last two come from your payroll and bookkeeping, so reconcile payroll deferrals to plan deposits month by month.

State sales tax audits

A sales tax auditor compares what you sold with what you reported. Have sales broken down by state and jurisdiction, the returns you filed, and the exemption or resale certificates for every sale you did not tax. How many years they review depends on the state.

Clean up before the auditor arrives

An audit is a bad time to discover that the books were never reconciled. If months are unreconciled, balances unexplained or opening balances wrong, do the cleanup first. It costs less to fix records before fieldwork than to pay an auditor to find the problems.

SF Business Solutions does cleanup work starting at $250 and prepares the schedules above. The audit opinion itself must come from an independent CPA firm; ours are available through our professional CPA partner firms.