In this episode of THE SAMPLE, Leita Hart-Fanta, CPA discusses how to prepare for an audit.
Welcome to The Sample, a quick discussion of auditing concepts and terms that will help you do your work. Conducting an audit in accordance with auditing standards is no small feat and I want to support you. We’ll be referring to the GAO, IIA and AICPA literature to bolster our conversations. Let’s get started.
In this episode, we discuss how to prepare for an audit. Congratulations, you’re somebody important! What you’re doing is important enough that someone hired an auditor to come make sure you’re doing what you’re supposed to be doing.
Some people never get audited, because they’re not important; you are. I don’t know if that made you feel any better, but let me give you some tips to get through this.
Tip 1: Find out what question your auditor is asking
You need to find out three tips. First of all, find out what question your auditor is asking. They’re not going to look at everything you’re doing. They’ve got a goal.
- Are they looking at your financials?
- Are they looking at compliance?
- Are they looking at whether what you’re doing is working as intended?
Find out what question they’re asking, because luckily, they’re not going to look at everything.
Tip 2: Identify what standards you are being compared against
As part of that, they’re going to use some criteria to evaluate you against; that’s what auditors call it. That’s what auditors call the standard they’re comparing you against, or your behavior, or your financials, or your compliance.
Are they comparing you to a law, a contract, a grant agreement, some kind of documented standard like the COSO model? Are they benchmarking you against another entity that’s similar to you?
Find out what they’re comparing you to, get your team together, and go line-by-line with each of those items in that criteria, in that standard and say, “Okay, how can we prove we’ve met this standard? How can we prove we’ve met that standard?”
And realize that the auditor is not going be able to take your word for complying. They’re not. You can’t just say, “Yes, we, we did it.” They’re not going be able to go with that. They cannot take your word for anything. That’s called testimonial evidence. And that’s the weakest kind of evidence.
There’s three types here: physical, documentary, and testimonial. Physical would be showing them the item you bought or the bridge that you built with the money.
Documentary evidence is showing them an invoice or some data that you collected online.
Those are the things you want to give to the auditor, to prove that you’ve met that criteria. Again, they’re not going be able to go on your word. It’s not because they don’t believe you, or they don’t like you. They just know that testimonial evidence changes as time goes on, or the more people you talk to. So they just won’t rely on it.
So write down, where can I point the auditor to, to prove with physical evidence or documentary evidence that I’ve met that criteria?
Tip 3: Just play along
My third tip is just play along. Resistance is futile <laugh>, and it could also cause the auditor to stay around longer than you really want them to, because auditors are naturally curious and the longer they have to look around and observe (and think), the more questions they’re going to ask, and that’s not what you want.
So you want to get the auditor what they need as soon as possible, and connect them with people that really know the answer. If they end up talking to somebody that goes, “Well, I don’t know. I’m not sure if we do comply with that grant term.” That’s going to make the auditor kind of worry. And then they’re going to wonder if you really have got your act together, and that’s going to cause them to ask more questions and we don’t want this. You do not want them to ask more questions, go ahead and connect them with somebody that can answer their questions, and do it right away. But you need to accept in order to make this happen, that they are going to consume your time.
You’re not going be able to do your regular job to the extent that you normally can, but if you invest the time now and get them the information they need promptly, they’ll go away as fast as possible. And that’s what you really want. You do not want them to linger, looking around, asking more questions.
So here’s my three tips: 1. Find out what question they’re asking. 2. Find out what standard they’re evaluating you against and prove that you’re meeting that standard. Auditors call that standard audit criteria. Find out what that criteria is, then 3. just go ahead and play along. You want them to go away as fast as possible.
Hope that helps.
Would you like to learn a little bit more about this topic and earn some CPE at the same time? If you want to know what your auditor is thinking about doing next, I recommend you look under the Essential Skills topics on our website and you study this book right here, Essential Auditing Skills and Techniques for the Government Auditor, because what it does is it walks you through all the steps of conducting an audit and you can be one step ahead of the auditor.
That wraps it up for another episode of The Sample. True to the nature of a sample, we didn’t talk about everything, so you’ve probably got questions. Write to me email@example.com and I’ll do my best to fill in the blanks. Thanks for playing.
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