Here in Rwanda the deadline for submitting and paying taxes for most companies is 31 March. For large companies, along with their tax filings, they must also submit their audited financial statements. This makes the first quarter of the year a very busy time for all accountants, whether you’re a bookkeeper, internal accountant, consultant, or tax advisor. We are all working towards the same deadline of 31 March!
Now that all audits have been completed and filings submitted, it’s a good time to talk about some lessons learned from the 2018 audit season, and specifically how you, as an accountant, can have a positive impact on the audit and tax process at your organization.
Lesson 1: Think about materiality
External auditors develop their audit plan based on the concept of materiality, meaning that their audit procedures are focused on material (large and/or complicated) balances. On the statement of profit and loss, these accounts typically include revenue, cost of goods sold, and personnel expenses. On the statement of financial position, material balances generally differ from company to company based on the industry they operate in, but usually include cash, inventory, fixed assets and debt. As an accountant at an organization, you should understand this concept and focus on those material balances, ensuring they are accurate before your auditors arrive. This doesn’t mean you should ignore smaller balances and transactions! It does mean you should spend most of your time focusing on the bigger items.
Lesson 2: Focus on accounting estimates
Accounting for some balances requires the use of judgment and estimation. Balances such as accruals, foreign exchange gains and losses, and allowance for doubtful accounts all require some form of judgment. When judgment is involved, you should know that your auditors will spend significant time on these balances. You should be ready for questions on the methods your company uses and the inputs used to develop these estimates.
With audit season over, it is now the perfect time to create formal documentation and procedures for your organization’s material accounting estimates (if you don’t already have this). Some tasks that can be done include:
- Develop a comprehensive list of all of the company’s vendors and recurring expenses. Monitor these transactions over the course of 3 to 6 months to ensure that your accrual estimates are accurate.
- Develop a process to calculate and record foreign exchange gains and losses on a monthly basis.
- Talk to your auditors about other key estimates specific to your company and get their thoughts on whether you have strong enough documentation to support them.
Lesson 3: Plan for the audit well in advance
It is not possible to predict and prevent all issues that may arise over the course of an audit. Many of them are often outside of your control. Penalties for late tax filings are high therefore it is very important to plan for the audit well in advance of deadlines. Ideally, this process begins before the end of the year.
Later this year year, prepare for your audit by:
- Agreeing to an audit plan with your auditors: Time and time again, we see auditors wait until the last minute to show up to their client’s site and communicate the audit plan. As an accountant, talk to your Manager/CFO to ensure that you meet with your auditors well before the year-end audit procedures begin. Discuss the major transactions that happened in the year and how they impact your financials.
- Assigning responsibility to team members: Make sure that you and your colleagues know who is responsible for each financial statement balance. For each material balance, one team member should be responsible for gathering the required documentation and communicating with the auditors for any queries that arise.
Hopefully these tips are helpful as you think about how next year’s audits can run more smoothly!