11 Tips To Ensure A Smooth Financial Audit
Making the Auditor's Jobs Easier and Limiting Audit Fees
All you have to do is turn on the TV for a few minutes to see some fine examples of the benefits of symbiotic relationships. Although it might have tampered the dizzying drama between the two, Tom and Jerry were always able to accomplish more when working together. Likewise, in the rare instances when Wile E Coyote stopped chasing after the Roadrunner and just enjoyed his life for a bit, anvils wouldn't fall on his head and he wouldn't launch himself over a cliff. Life was good.
Think of the relationship between clients and their auditors in the same animated light. When the auditor’s job is made easier, everyone wins – clients aren't saddled with never-ending audits that induce heart palpitations, nervous sweats, and excessive fees.
Your friends at Embark have become industry experts at fostering those mutually beneficial relationships between companies and their auditors, helping clients prepare for an audit by executing concise, clear, and proactive communication with the external auditors. When working with Embark, the audit environment is healthy, efficient, and, most importantly, free of anvils falling from the sky.
Embark in the Wild: A Picture of Audit Efficiency
As you've likely already gathered from these frequent missives of ours, Embark is not one to shy away from occasional self-aggrandizing. We assure you, however, that such occasions are never taken lightly and always warranted. For example, a recent project involving a REIT and their Big 4 auditors that involved Embark helping to tackle new areas and subsequent documentation ultimately led the senior to say, "This is the best work paper I have ever seen."
See what we mean? Embark is so much more than pretty faces, witty blog posts, and endless financial insights. Embark in the wild is something to behold, eminently capable of transforming the audit process from arduous to streamlined, choppy seas to smooth sailing. As such, one of our absolute strengths is making the auditor’s job easier to improve overall efficiency and engagement economics, creating and maintaining an environment where everyone comes out on top.
A Closer Look at That REIT Project
As is always the case, Embark was in constant communication with the REITs auditors on behalf of the company – in real time – rather than waiting for them to be on-site for year-end or quarterly work. With Embark involved, the auditors were always fully informed of any transaction issues, new areas, or changes that came up to eliminate surprises, streamline the process and keep it necessarily warm and fuzzy.
More precisely, Embark was brought in to help with 4 distinct areas that involved big changes and, therefore, would require additional work by the auditors. Of course, meeting the auditor's needs on these 4 changes would consume vast amounts of time and already stretched resources to create additional stress for both the auditor and the client. By working with Embark on these four areas, however, panic attacks were kept at bay, sleepless nights avoided, and no auditing tsunamis were triggered.
Long-Lived Fixed Asset Impairment Analysis and Memo
As an example of our constant communication, Embark met with the auditors and reviewed the Long-Lived Fixed Asset Impairment Analysis memo and supporting schedules early in the audit. In response, the auditors preferred Embark perform additional procedures in one area, something that – under different circumstances and with another firm – might have created unneeded auditing brush fires that would inevitably spring up at audit close. By working with Embark, however, everything was effectively handled before the end of the audit and all was right with the world. Well, at least with regards to the audit.
Change in EPS/Diluted EPS Calculation Schedule
Audits don't have to consume multiple lunar phases in order to be completed effectively. In other words, they shouldn't take forever but often do. In our REIT project, we were able to decrease the EPS calculation schedule from many days to a single, one hour meeting. Likewise, follow-ups with the external auditors went from innumerable touch points and drop-in meetings to one follow-up question that took about 15 minutes. Like we said, efficiency and effectiveness should not be mutually exclusive.
Another highly complex component of the EPS workbook concerned the many modified stock compensation plans involved, each one different with its own provisions and schedules. Given their seemingly endless moving parts and assorted variables, the diluted earnings per share with complex stock compensation plans tend to induce violent headaches and queasy stomachs due to their complex nature.
In our REIT project, however, Embark designed an EPS workbook that was already “tied out,” incorporating all of the supporting information, questions, and explanations that the auditors would inevitably ask for, including the stock compensation plans.. With our roots in the Big 4 world and extensive audit experience, we know what types of questions the auditors will ask before those questions even cross an auditor’s lips.
While this particular part of the audit process would usually devour an entire week and cause significant disruptions during an extremely busy time for the client, the auditors only had a single question remain after reviewing Embark's workbook. This allowed our client to control when the auditors came in to ask questions and, therefore, better manage the time they spent on the process.
Likewise, by concentrating on completing the PBCs, Embark was also able to minimize disruptions for the auditors by significantly reducing the amount of time the auditors would otherwise need. This, of course, also helped the auditors maintain a better working relationship with the client by eliminating most of the typical interruptions to the client.
No proper diatribe from your friends at Embark would be complete if it didn’t beat you over the head with repetitive themes. To that point, this is where the aforementioned quote from the senior auditor begs to be repeated: "This is the best workpaper I have ever seen." The senior literally had no questions at all upon reviewing the severance workbook – an extreme rarity along the lines of a unicorn or an even-tempered Chihuahua.
Throughout the process, Embark methodically examined the stock-based compensation expenses to determine if there were any modifications. This involved reading each of the original compensation agreements in order to compare them to the corresponding severance agreements. Along the way, Embark also created a convenient dutiable schedule with tie-out support to the agreements.
The Work's Not Done at Audit Close
Continuing the REIT case study, after the external audit closed, Embark was also asked to fill in the gaps in preparing a PP&E rollforward schedule. By automating a workbook that the previous director spent two weeks creating, Embark was able to completely redesign it and instill significant improvements in only a couple of days, also designing a standard template using system reports as inputs. Collectively, our efforts drastically cut down the time needed to update the rollforward along the way.
Ultimately, Embark was able to effectively fill this role and provide the client ample time to be deliberate and thorough in their search for the ideal person for the position. In fact, the client even asked Embark about our thoughts on many of the potential candidates.
Moreover, Embark provided pristine documentation for every step of the process throughout the entire consulting engagement. In a world of extremely high turnover and the inherent inefficiencies that accompany attrition, having clean schedules with proper documentation and support makes knowledge transfer significantly easier and more streamlined. Between turnover and dealing with auditors, the audit environment can often feel like it rests on top of a bulging earthquake zone, ready to wreak havoc at a moment's notice when new team members struggle to answer audit questions while simultaneously trying to figure out how things work in the first place
For instance, if there is a specific system report that has been routinely manipulated in the past and serves as a source for a schedule, the typical lack of documentation on the manipulated report can create extreme levels of confusion and stress. By working with Embark, however, everything is well documented and concise to provide all involved parties the necessary transparency and information to effectively accomplish the task. Obviously, our meticulous nature also minimizes unneeded stress and follow-up questions during the review.
Embark Provides a Tangible Difference to the Entire Process
In short, Embark provides easily and efficiently auditable schedules by proactively identifying what auditors expect to see rather than simply reacting to questions and concerns. This approach eliminates much of the back-and-forth that typically accompanies an external audit, decreasing follow-up times for auditors as well as the time clients must spend with audit questions. Given our past experience on innumerable audits, it’s simply impossible to surprise us with any questions or issues – we've seen and heard it all.
Furthermore, the Embark approach helps minimize audit fees by saving the auditors time that otherwise would be used in creating, reviewing, and clearing questions. In fact, auditors can simply upload Embark's specialized schedules directly into their own workpapers. Likewise, from a client's perspective, with auditors charging hourly rates, Embark can also prove to be extremely cost-efficient by significantly reducing billable hours. Using another Big 4 firm and their accompanying Big 4 rates instead of Embark to prepare for an audit would undoubtedly be significantly more expensive.
The Big (Audit) Picture
When audits can be measured in days rather than millennia, Embark considers it a job well done by streamlining the typically long, arduous external audit process. Such improved efficiencies means the client could even negotiate for a lower price on future audits. Like we said up top, everyone wins when Tom and Jerry use mutually beneficial solutions.