Are you a controller or accountant of a company and fear the dreaded list of adjusting entries you receive at the end of the audit that you are required to make? Here are five adjusting entries you can avoid and how to avoid them.
1. Balancing retained earnings
This entry generally comes about when entries are made after your back up is sent to your accountant.
Key ways to avoid:
- Do not record any more entries to your accounting software once you’ve sent the records to the accountant. If you need something recorded contact your accountant.
- Never post to the retained earnings account unless requested by your accountant.
2. Entries to adjust accounts receivable/payable
This entry generally comes about when the balance in your GL does not agree to your accounts receivable/payable listings generated from your accounting software.
Key ways to avoid:
- Run listings of your A/R or A/P monthly to ensure they match the balance on the GL. The sooner you catch any discrepancies, the easier it is to correct them. At a minimum, run the listings prior to sending your accountant the back up at year end.
- Never post directly to these accounts. Always use the receivables or payables modules. General journal entries can cause discrepancies in these accounts if the modules are not used.
3. Prepaids adjustments
This entry occurs when an organization pays for an expense that benefits them for a period that extends beyond their year end date. Most common is your insurance or major memberships or dues. Your accountant will most likely have a prepaid expenses schedule that indicates which expenses they adjust. You can request this at any time and record the entries yourself, either monthly or at year end.
Key ways to avoid:
- Request the schedule from your accountant and record monthly entries.
- Always review at year end and reconcile to what is showing in your GL.
4. Capitalizing expenditures
This entry occurs when the auditor identifies an item that was recorded as an expense by the client, but that meets the definition of an asset. An organization’s capitalization policy helps determine when an expenditure is capitalized instead of being expensed.
Key ways to avoid:
- Talk with your accountant to determine the capitalization policy of the organization (typically larger value items that have a useful life greater than 1 year).
- At year end, review the major expenses incurred to determine if any of them should have been recorded as capital assets instead of expenses.
- If you are ever unsure just give your accountant a quick phone call and ask their advice.
5. Interest on long term debt
This entry generally comes about when the full amount of loan payments are recorded to the loan account without separating out the interest portion. Most loan statements will indicate the interest portion and if not, your accountant will have a loan amortization schedule you can follow.
Key ways to avoid:
- Using monthly statements to record loan payments and reconcile monthly.
- Or at minimum obtain a loan statement as at the end of the fiscal year and agree the loan balance on the statement to the loan balance on your general ledger before sending in your back up.
Following these key steps will allow you to shorten that dreaded long list of adjustments that comes at the end of your audit. Key thing to remember if you are ever unsure, ask your accountant, they are here to help.
Do you dread your year end audit? Does having the auditors in your office stress you out and make for a long week? Here are few steps to ensure your year end audit goes smoothly and quickly and gets the auditors out of your office ASAP!
1. Be prepared and plan ahead.
Communicate with your auditors before the audit and let them know about any big events, major changes, or large expenditures during the past year.
Typically, your auditor sends out a letter prior to the audit with a listing of items and documents they will want to see and review. Ensure these items are printed out or that electronic copies are available. We can provide a link so these documents can be easily sent to us using our share file web portal. This will result in fewer questions from the auditors and less time spent in your office!
Another way to ensure everything is ready, is to go through your balance sheet and ensure there is documentation or a reconciliation for all the balance sheet accounts. Your auditor will be asking for this, I guarantee!
Providing anything you can prior to audit will allow for the auditors to do pre-work before coming out, if possible.
2. Offer to prepare items or documents for them.
If there are documents normally prepared by the auditor that you think you can prepare, having these completed and reconciled will allow them to just review the work of reconciliation done instead of having to do the reconciliation themselves.
3. Do a pre-review of the trial balance before sending the records.
Doing a quick review of your trial balance and ensuring accounts reconcile to supporting documentation you are providing, will allow for a much more efficient audit and fewer questions. This includes reviewing income statement accounts and having knowledge of any major changes from prior year.
4. Be available.
Audits are typically scheduled well ahead of time. Ensure your schedule is clear during that time so you are available to answer questions when the auditors are on-site.
Just following these few steps will have those auditors in and out of your office in no time. See your year end audit doesn’t sound so bad now, right? 😊
We are excited to announce that our firm is actively seeking a Senior Accountant to join our team in our Red Deer office. For further details, and to apply for this position if you are qualified, please see the detailed information at this link: https://pivotalcpa.bamboohr.com/careers/59
The term “audit” is often intimidating, especially when you are going through the process for the first time. However, if you work closely with your auditor and plan ahead, the process can be smooth and non-intrusive.
Steps to prepare for your audit:
1. Set out a realistic schedule
When you are preparing for your first audit you need to set out a realistic schedule. The process does require a time commitment, especially in the first year. You will need to set aside time for pre-work, which will include the preparation of the documents that the auditor has requested. Next, you will need to be available for the auditor’s questions during their field work. Finally, there will be additional follow-up questions and meetings. Being aware of the time commitment and setting up a schedule will help with making the process run smoothly.
2. Have a pre-audit meeting with the auditor
Pre-audit meetings are crucial to allow the auditor to fully understand the business, including the policies and procedures that are in place. This meeting is also a great time to sit down and go over the required documents to ensure that you are aware of what the auditor is looking for. Finally, this meeting provides an opportunity to outline everyone’s expectations to ensure that all parties are on the same page.
3. During the field work
In order to have your fieldwork over with quickly, it is best to have the requested documents prepared in advance, and available prior to the auditor’s arrival. This avoids any inefficiencies of having to wait for requested documents. During the fieldwork you will also need to be available for any questions that the auditor may have. Assuming that the documents are prepared this shouldn’t be too time consuming.
4. Ask questions
As auditors we are aware that this is your first time being audited and available to answer any questions. If you have questions be sure to ask, we are here to help.
A first-time audit can be very frightening, however if you are aware of process and expectation it can be non-intrusive and over before you know it!
Our firm is seeking candidates to join our team starting in September 2024 as a CPA Articling Student. If you will be entering the CPA Professional Education Program (PEP) and would like to be considered for this opportunity, please see all the details at the following link: https://pivotalcpa.bamboohr.com/careers/56
If you are an accounting major in year two or three of your post secondary business program, we invite you to consider a co-op work term with our firm! You may find all the details and submit your resume at the following link: https://pivotalcpa.bamboohr.com/careers/57
Are you an accounting student who would like to join our firm for the summer months of May - August 2024? If so, please see the following link to register your interest: https://pivotalcpa.bamboohr.com/careers/58
On March 28, 2023, the Deputy Prime Minister and Finance Minister, the Honourable Chrystia Freeland, presented Budget 2023 – A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future, to the House of Commons. Please see the following document for the complete details: 2023 Federal Budget Commentary