audit-readiness-preparer

# Audit Readiness Preparer

## Overview

Audit preparation is often chaotic—scrambling for documents, fielding unexpected questions, and discovering issues at the worst time. This skill provides a framework to systematically prepare for audits, reducing stress and audit fees while demonstrating strong internal controls.

## Why Audit Readiness Matters

```
UNPREPARED:                        PREPARED:
───────────                        ─────────
• Last-minute scramble             • Organized binder ready
• Extended fieldwork               • Efficient fieldwork
• More audit fees                  • Lower audit fees
• Auditor frustration              • Auditor confidence
• Findings from poor process       • Findings only on substance
• Control weakness signals         • Strong control signals
```

## Audit Timeline

### Typical Annual Audit Timeline

```
AUDIT CALENDAR
──────────────

Q3 (Planning):
├── Engagement letter signed
├── Planning meeting with auditors
├── Audit timeline confirmed
└── Preliminary request list received

Q4 (Interim):
├── Interim fieldwork (if applicable)
├── Control testing
├── Walkthrough procedures
└── Preliminary issues identified

Year-End:
├── Year-end close (accelerated if needed)
├── Final request list received
└── PBC (Prepared By Client) schedule prep

Q1 (Fieldwork):
├── Fieldwork begins
├── Daily/weekly status meetings
├── Issue resolution
└── Draft financials reviewed

Q1-Q2 (Completion):
├── Audit adjustments finalized
├── Management representation letter
├── Audit report issued
└── Management letter (if applicable)
```

## Pre-Audit Preparation

### Planning Meeting Checklist

```
AUDIT PLANNING MEETING PREP
───────────────────────────

BEFORE THE MEETING:
□ Review prior year audit findings
□ Identify significant current year events
□ List known accounting issues/changes
□ Prepare key metrics and trends
□ Identify new transactions/accounts
□ Note any system changes

DISCUSS AT MEETING:
□ Audit timeline and deadlines
□ Key audit areas and risks
□ New accounting standards impact
□ Significant transactions
□ Internal control changes
□ Staffing and contact list
□ Technology for document sharing
□ Communication protocols
```

### Preliminary Request List Review

```
WHEN REQUEST LIST RECEIVED:
───────────────────────────

□ Review immediately (don't wait)
□ Identify unclear requests (ask questions now)
□ Assign owner to each request
□ Set internal deadlines (before audit deadline)
□ Identify items needing additional work
□ Flag items that don't exist or need creating
□ Communicate timeline to preparers
```

## PBC (Prepared By Client) Schedules

### Standard PBC Schedules

| Schedule | Description | Owner |
|----------|-------------|-------|
| Trial balance | Final TB with all adjustments | ______ |
| Cash lead schedule | Cash by account with bank rec | ______ |
| AR aging | Detailed AR aging with allowance | ______ |
| Revenue detail | Revenue by category/customer | ______ |
| Inventory schedule | Inventory detail by category | ______ |
| Fixed asset rollforward | Additions, disposals, depreciation | ______ |
| Prepaids schedule | Detail of prepaid balances | ______ |
| AP aging | Detailed AP aging | ______ |
| Accrued expenses | Detail by account/vendor | ______ |
| Debt schedule | Debt rollforward, interest calc | ______ |
| Equity rollforward | Changes in equity accounts | ______ |
| Intercompany | IC balances and eliminations | ______ |

### PBC Quality Standards

```
PBC SCHEDULE REQUIREMENTS:
──────────────────────────

EVERY PBC SHOULD:
□ Tie to GL/trial balance
□ Foot and cross-foot correctly
□ Have clear column headers
□ Include comparison (PY or budget)
□ Explain significant variances
□ Reference supporting documents
□ Be clearly labeled (account, period, preparer)

FORMAT:
□ Excel (formulas intact, not hard-coded)
□ Consistent formatting
□ Print-ready (fits on page)
□ Tab named appropriately
□ Linked to source data
```

### PBC Schedule Template

```
[COMPANY NAME]
[SCHEDULE NAME]
As of [Date]

                                          Current     Prior       Variance
Account #   Description                   Year        Year        Explanation
─────────   ───────────────────────────   ─────────   ─────────   ───────────
XXXX        [Account name]                $           $           
XXXX        [Account name]                $           $           
XXXX        [Account name]                $           $           
            ─────────────────────────────────────────────────────
            Total [per trial balance]     $           $           


Reconciliation to GL:
Per schedule above                        $
Less: [adjustment]                        ($          )
Per general ledger                        $           [should tie]

Prepared by: _________________ Date: _________
Reviewed by: _________________ Date: _________
```

## Document Organization

### Audit Binder Structure

```
AUDIT DOCUMENTATION STRUCTURE
─────────────────────────────

📁 AUDIT [YEAR]
├── 📁 00-ADMIN
│   ├── Engagement letter
│   ├── Request lists (all versions)
│   ├── Status tracker
│   └── Communication log
│
├── 📁 01-PLANNING
│   ├── Planning meeting notes
│   ├── Prior year audit report
│   ├── Prior year management letter
│   └── Prior year adjustments
│
├── 📁 02-TRIAL BALANCE
│   ├── Trial balance (final)
│   ├── Journal entry listing
│   └── Audit adjustments
│
├── 📁 03-CASH
│   ├── Bank reconciliations
│   ├── Bank statements
│   └── Cash lead schedule
│
├── 📁 04-RECEIVABLES
│   ├── AR aging
│   ├── Allowance analysis
│   └── Subsequent collections
│
├── 📁 05-REVENUE
│   ├── Revenue detail
│   ├── Significant contracts
│   └── Deferred revenue schedule
│
├── 📁 06-INVENTORY
│   └── [If applicable]
│
├── 📁 07-FIXED ASSETS
│   ├── FA rollforward
│   ├── Additions support
│   └── Depreciation schedule
│
├── 📁 08-PREPAIDS
│   ├── Prepaid schedule
│   └── Amortization schedules
│
├── 📁 09-PAYABLES
│   ├── AP aging
│   └── Subsequent disbursements
│
├── 📁 10-ACCRUALS
│   ├── Accrued expense schedule
│   └── Supporting calculations
│
├── 📁 11-DEBT
│   ├── Debt agreements
│   └── Debt schedule
│
├── 📁 12-EQUITY
│   └── Equity rollforward
│
├── 📁 13-PAYROLL
│   ├── Headcount/payroll analysis
│   └── Benefits reconciliation
│
├── 📁 14-INCOME TAX
│   └── Tax provision workpapers
│
└── 📁 99-OTHER
    └── Miscellaneous
```

## Common Audit Requests

### Cash and Banking

```
CASH AUDIT REQUESTS:
□ Bank reconciliations (all accounts, all months)
□ Bank statements (all accounts, all months)
□ Bank confirmations (auditor sends)
□ Outstanding check detail
□ Wire transfer log
□ Petty cash count (if applicable)
□ Restricted cash documentation
```

### Accounts Receivable

```
AR AUDIT REQUESTS:
□ AR aging (detail level)
□ AR rollforward
□ Allowance for doubtful accounts calculation
□ Bad debt write-off detail
□ Credit memo detail
□ Subsequent cash receipts
□ Revenue recognition policy
□ Significant customer contracts
□ Customer credit files (sample)
```

### Revenue

```
REVENUE AUDIT REQUESTS:
□ Revenue by category/product
□ Revenue by customer (top X)
□ Revenue by month
□ Significant contracts
□ Deferred revenue rollforward
□ Revenue recognition memos (for complex transactions)
□ Sales returns analysis
□ Commission expense analysis
```

### Fixed Assets

```
FIXED ASSET AUDIT REQUESTS:
□ Fixed asset rollforward
□ Additions detail with invoices (sample)
□ Disposals detail with gain/loss calc
□ Depreciation schedule
□ Depreciation policy documentation
□ Impairment analysis (if applicable)
□ Capitalization policy
□ CIP (Construction in Progress) detail
```

### Accounts Payable and Accruals

```
AP/ACCRUALS AUDIT REQUESTS:
□ AP aging (detail level)
□ AP rollforward
□ Subsequent disbursements
□ Accrued expense schedule
□ Accrual support/calculations
□ Vendor confirmations (auditor sends, sample)
□ Search for unrecorded liabilities
□ Purchase cutoff analysis
```

## Control Documentation

### Walkthrough Preparation

```
CONTROL WALKTHROUGH PREP:
─────────────────────────

For each significant process, prepare:

□ Process narrative or flowchart
□ Key controls identified
□ Control owner identified
□ Sample transactions to walk through
□ Supporting documentation ready
□ System access for auditor (read-only)

KEY PROCESSES TYPICALLY COVERED:
□ Revenue/Accounts receivable
□ Purchasing/Accounts payable
□ Payroll
□ Inventory (if applicable)
□ Financial close and reporting
□ IT general controls
```

### Control Evidence

```
FOR EACH KEY CONTROL:
─────────────────────

□ Control description documented
□ Control owner identified
□ Frequency documented (daily/weekly/monthly/etc.)
□ Evidence of performance available
□ Sample period identified
□ Exceptions documented (if any)

EVIDENCE TYPES:
• Sign-off/approval
• Reconciliation
• Review documentation
• System-generated report
• Management review meeting notes
```

## Anticipate Auditor Questions

### Questions by Area

```
COMMON AUDITOR QUESTIONS:
─────────────────────────

REVENUE:
• Any new significant customers?
• Any changes to pricing or terms?
• Any bill-and-hold arrangements?
• Any side agreements or verbal commitments?
• Any refunds or credits after year-end?

RECEIVABLES:
• Any customers in financial difficulty?
• Any unusual aging trends?
• How was allowance determined?
• Any receivables from related parties?

EXPENSES:
• Any unusual or non-recurring expenses?
• Any significant vendor changes?
• Any related party transactions?
• Any expenses that should be capitalized?

ESTIMATES:
• Any changes in estimation methodology?
• Any significant management judgments?
• What assumptions were used?
• How sensitive are estimates to changes?

GENERAL:
• Any legal matters or contingencies?
• Any subsequent events after year-end?
• Any related party transactions?
• Any changes in accounting policies?
```

### Prepare for Inquiry

```
FOR SIGNIFICANT AREAS, PREPARE:
───────────────────────────────

1. SUMMARY MEMO
   • Key facts and figures
   • Changes from prior year
   • Significant transactions
   • Judgments and estimates

2. SUPPORTING ANALYSIS
   • Calculations and methodology
   • Assumptions documented
   • Sensitivity analysis (if applicable)

3. THIRD-PARTY SUPPORT
   • Contracts
   • Legal opinions
   • Specialist reports
   • Market data
```

## Issue Management

### When Issues Arise

```
AUDIT ISSUE RESPONSE:
─────────────────────

1. UNDERSTAND THE ISSUE
   □ What specifically is the concern?
   □ What is the auditor looking for?
   □ What is the potential impact?

2. GATHER FACTS
   □ Pull relevant documentation
   □ Interview relevant people
   □ Understand the full picture

3. EVALUATE OPTIONS
   □ Is an adjustment needed?
   □ Is additional support available?
   □ Is there a judgment difference?

4. RESPOND PROFESSIONALLY
   □ Provide complete information
   □ Document your position
   □ Escalate if needed

5. TRACK TO RESOLUTION
   □ Log in issue tracker
   □ Follow up on open items
   □ Document final resolution
```

### Issue Tracker

```
AUDIT ISSUE TRACKER
───────────────────

Issue #: _____
Date Raised: _____
Raised By: _____

Description:
_________________________________

Area: □ Revenue □ Expenses □ Assets □ Liabilities □ Other

Severity: □ Material □ Significant □ Minor

Current Status: □ Open □ In Progress □ Resolved

Our Position:
_________________________________

Supporting Documentation:
□ _________________________________
□ _________________________________

Resolution:
□ No adjustment (documented)
□ Adjustment posted: $_________
□ Disclosure added

Resolved By: _________ Date: _________
```

## Audit Fieldwork Best Practices

### Daily Management During Audit

```
DAILY AUDIT MANAGEMENT:
───────────────────────

□ Morning check-in with audit team
□ Review open items list
□ Prioritize requests for the day
□ Escalate blockers
□ End-of-day status update

TRACK:
• Items provided
• Items outstanding
• Questions pending
• Issues identified
```

### Communication Protocols

```
COMMUNICATION GUIDELINES:
─────────────────────────

DO:
✓ Respond promptly to requests
✓ Ask clarifying questions
✓ Document verbal discussions
✓ Escalate issues early
✓ Be transparent about problems

DON'T:
✗ Provide partial information
✗ Hide issues
✗ Make auditors wait
✗ Argue without facts
✗ Go around the audit manager
```

## Close-Out

### Audit Completion Checklist

```
AUDIT COMPLETION CHECKLIST:
───────────────────────────

□ All PBCs provided
□ All requests fulfilled
□ All issues resolved or documented
□ Audit adjustments reviewed and posted
□ Management representation letter signed
□ Draft financials reviewed
□ Footnotes reviewed and approved
□ Subsequent events through report date reviewed
□ Audit report received
□ Management letter reviewed (if applicable)

POST-AUDIT:
□ Debrief meeting held
□ Lessons learned documented
□ Process improvements identified
□ Calendar updated for next year
```

## Resources

### references/
- **pbc-schedule-guide.md** — Detailed PBC preparation instructions
- **audit-request-library.md** — Standard audit requests by area
- **control-documentation-guide.md** — How to document controls

### scripts/
- **request-tracker.py** — Tracks audit request completion

### assets/
- **audit-binder-template.zip** — Folder structure template
- **pbc-templates.xlsx** — Standard PBC schedule templates
- **issue-tracker.xlsx** — Audit issue tracking workbook