Is your business seeking ways to reduce expenses? Use these tips to save money by reducing audit costs.
Many government contractors struggle to remain profitable in the face of a highly competitive business environment where low price often wins. Perhaps yours is one of those businesses, but you do not want to cut staff, salaries, occupancy or other costs that can have a demoralizing effect. Reducing the fees that you are paying to your auditors can be a painless way to potentially save your company thousands of dollars per year. Here are a few strategies to help you lower the cost of your audit when it is based on actual billable hours and not on a fixed price.
Audit preparation is a year-round process, and nothing can help you save fees like being prepared for your audit. Prepare by getting in the habit of keeping up-to-date reconciled accounting records year-round.
Reconcile the general ledger to accounts payable, accounts receivables and cash by the end of the following month. Reconcile your labor distribution to your gross payroll after each pay cycle. Be aware that the DCAA will reject your Incurred Cost Submission if your schedules do not reconcile. We see this from time to time, and it will cause unnecessary delays with your audit firm if your books of record do not tie out with subsidiary ledgers. As a rule of thumb, once your month bank statement reconciliation is completed, you can close that month.
Be sure to fully complete the year-end closing process in addition to the list of items and schedules requested by your auditor before the audit begins. Failing to do so can result to inefficiencies during the audit process, which will quickly increase audit fees. Do not make the presumption that you can complete the list of requested items during the audit. Additional questions will arise during the audit process that can potentially delay the preparation of the items on the list. Your auditors will likely want to see documentation for various journal entries recorded during the course of your fiscal year, so make it an internal policy to attach the related notes to the corresponding entries in your accounting software for quick on-demand retrieval and to avoid the dreaded paper chase.
You should communicate with your audit firm more than once a year. Holding periodic meetings either virtually or in person with your audit firm will help you to root out any potential problems before they become costly mistakes or omissions as you strive to prepare the best possible set of books and records in anticipation of your audit.
Audits, Reviews, and Compilations
You may not be aware of the different levels of assurance that accounting firms can provide. Besides a traditional audit, accountants can perform a review or a compilation. When you understand the different levels of service available, you can select the best service for your needs. Here's how these different services compare:
1. Audits constitute the highest level of assurance that an accountant can provide. During an audit, your accountant uses various techniques to verify the accuracy of your company's financial information. Then, he or she expresses an opinion on the information regarding its fairness, and provides reasonable assurance that the financial information you provided has been tested appropriately.
2. Reviews provide a limited level of assurance that no material modifications should be made to your financial statements. Testing mostly consists of inquiry and analytical review of your financial data since reviews only provide limited assurance. Reviews are less expensive than audits because they involve less testing and less of an understanding of your business operations.
3. Compilations are the lowest level of service your accountant can provide. Essentially, your accountant will present the financial data you provide in financial statement format. This option offers no assurance over the financial data because no testing, inquiry, or analytical procedures are performed. Therefore, compilations are much less expensive than both the audit and the review.
It is important to note that the accountant does not need to be independent when performing a compilation. However, he or she will need to be independent when performing both reviews and audits.
Before deciding on a lower level of service (if that is an option), you will need to discuss your compliance requirements with your accountant. If you determine that a lower level of service will meet your needs, then you may well be able to spend less than you would on a typical audit.
A cost-effective audit can save your company money that can be channeled to other parts of your business. When you are organized, prepared, and knowledgeable of your options, you will be positioned to prepare and complete the requested information for an efficient audit. As always, being thorough will save both time and money!