Author
C. Dougherty
Carolyn Dougherty

The day-to-day operations of public sector entities are getting busier all the time and changes to everyday activities can be seen as disruptive.

Every public sector entity is required to undergo an annual financial audit. While we hope that the audit will provide value to your entity, we know that sometimes it can be perceived as a disruption to normal business operations, particularly for small entities with a small number of staff. To reduce the impact on these small entities, this article provides some tips on how to prepare for your audit.

Clear communication and planning are key

We always plan for open, clear and constant communication with our clients throughout their annual audit. And we want to support you through difficult times—such as when the COVID-19 pandemic required all non-frontline staff to work from home. Please reach out to us early if our requests appear onerous or you wish to alter previously agreed time frames.

We will meet with you to discuss the timeline for our audit visits as we begin planning your entity’s audit. Proactively setting this schedule, while ensuring you meet your financial reporting deadlines—including month-end and board reporting commitments—will help you to prepare for the audit. It also helps us plan our resources to meet your schedule and ensure you are aware of when we will undertake audit activity.

We will discuss the following dates with you:

  • When we will conduct our audit visits depending on your entity’s size and complexity.
  • When you need to have finalised your position on new accounting standards, changes to accounting policies, complex or unusual transactions, or on what your estimates and judgements are (for example, asset valuations).
  • When you will have the final draft of your financial statements prepared for audit.
  • When management plans to certify your financial statements.
  • When we plan to issue our audit opinion for your financial statements.

We will provide you with a client assistance schedule (CAS) in the weeks prior to our audit visits. The CAS provides your entity with a list of the information we require to undertake our audit efficiently. It will help you plan for the audit and reduce disruption to your normal business activities while the audit is underway. We have published an example client assistance schedule on our website: Better practice: Example client assistance schedule.

What can your entity do to prepare for the audit?

Collate the information requested in the CAS before the audit visit

We have designed the CAS to help you prepare for the audit, and listed information in it that we require. We will provide it to you with a couple of weeks’ notice so that your finance team has time to collate the information with minimal disruption. The audit team can begin work immediately when entities collate this information before we arrive, and therefore we don’t lose time waiting for the necessary documentation. Please note that the CAS is not an exhaustive list of everything we require—we may ask for additional information to clarify items we examine as part of our audit.

If you do not understand what the audit team is asking for, please contact your audit manager to clarify. There may also be times where our terminology may vary slightly from yours.

Ensure key staff are available

The CAS outlines areas the audit team will cover during each audit visit. It is important that key personnel are available to the audit team to address any follow-up questions or requests for additional information. This will reduce the administrative burden and help the audit run smoothly.    

If you use an external service provider to prepare your financial statements, it is also beneficial to arrange for them to be available during the final audit visit for questions or in case changes are required to your financial statements. Alternatively, have an editable version of your financial statements available (such as a Microsoft Word or Excel version) so you can make any required changes in-house.

Check that all reconciliations are up to date

During our audit visits we will examine your entity’s account reconciliations—for example receivables; payables; bank reconciliations; inventory; and property, plant and equipment. This provides us with an understanding on how effective your entity is in managing financial processes and whether you follow up on outstanding issues in a timely manner. Completed reconciliations should include who prepared them, the date they were prepared, and who they were verified by and when.

Undertake a good month-end process

We have found that entities who have a robust month-end process have a smoother functioning year-end financial audit. This doesn’t have to replace your board or management reporting but can complement it. A good month-end process can provide valuable information to your executive management and board.

For example, we made a recommendation to all Queensland local governments to strengthen their month-end and year-end financial reporting processes. We suggested they use the financial statement preparation maturity model on our website to support their assessment.

Do you have complex accounting or valuation matters?

Complex accounting or valuation matters can impact on your financial statements. It is important that you discuss these with your audit manager as early as practical. Early engagement provides a common understanding of any accounting matters and valuation outcomes. It also allows time to work through complexities and alternate views.

Your auditors may request that you prepare a position paper to document the matter and the treatment you propose. Refer to our fact sheet Preparing position papers for accounting matters and valuation for guidance on this.

Do you prepare proforma financial statements?

Proforma financial statements are, simply, your proposed financial statements without the current full year figures. Many finance teams prepare proforma financial statements in the last quarter of the financial year so their management and their auditors can review the form and content of the statements prior to year end. This process provides an opportunity to give feedback on the statements early in the audit process and to resolve any identified disclosure issues.

For this to be a valuable exercise, entities need to include any known changes to text disclosures. This could be for accounting policy changes, reflecting new accounting standards, or discussing new or complex or unusual transactions.

How do you manage conflicts of interest?

Maintaining integrity in public administration requires employees to put the interests of the public first, and to address any conflict of interest in the public’s favour. As part of our audit, we may cover how your entity manages actual or potential conflicts of interest. A recent QAO blog, Conflicts of interest—How do you manage yours?, discusses this issue and provides insights into this process.

We will also assess how your entity captures and reports related party transactions. These are separate but related topics.

Are you prepared for the financial statement audit?

In planning for your financial statement audit, you should:

  • prepare good quality draft financial statements that management would be prepared to sign
  • consider whether your internal quality control processes are effectively operating to review and challenge the presented information
  • prepare workpapers to support the material balances and disclosures in the financial statements and their accounting treatment
  • prepare workpapers for other supporting notes to the financial statements, such as related parties, commitments, contingencies, litigation, and post balance date events
  • determine who your key management personnel are, including those who held the position for a short, but important, period of time, and collate their disclosures (which should be supported by documented workpapers).

Our audit teams complete the audits more effectively and efficiently when entities take a proactive approach to planning and supporting the audit process.

Please remember to reach out to your engagement leader or audit manager if you have problems that will affect the audit process.

Further information

Better practice guide: Client assistance schedule—entity example

Better practice guide: Financial statement preparation maturity model self-assessment tool

Fact sheet: Preparing position papers for accounting matters and valuation

Fact sheet: Financial statement preparation maturity model

Blog: Conflicts of interest—How do you manage yours?

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