Plan ahead to ease the annual audit process
Preparing for the annual audit can be one of the most stressful times of the year for university financial leaders. Some schools compound the challenges of the audit process by not adequately preparing. In these cases, schools are still working on the accounting books and schedules when the audit is supposed to start. This poses challenges for the auditors and results in a highly inefficient and disruptive process.
This doesn’t have to be the case, and the audit doesn’t have to be a burden. If a university treats the audit as a year-long process and follows proven best practices, it will help auditors be more efficient and ease the burden on the university’s financial staff.
A high-quality audit allows a university to gain a comprehensive understanding of its finances, address any weak points in accounting activities or internal controls, and learn more about best financial practices. It can also allow a school to demonstrate its financial strength to donors. To realize these benefits and make the most of the audit, though, universities need to plan ahead.
Check work and assign responsibility
A university should thoroughly review its data and check for errors and oversights. For example, it needs to compare the current year’s financial statements with a previous year to ensure the statements make sense. Also, schools can’t afford to overlook year-end closing journal entries. This is an area where errors can easily be introduced.
Universities should also devote time to properly determining cutoff related to tuition, revenue and receivables to ensure they have a clear understanding of the revenue that should be recognized in the year-end audit and the revenue that should be deferred to the following year.
A university’s finances can be complex, and there are many other areas that schools need to scrutinize, including how they allocate investment returns within the endowment. But universities can complete this oversight work effectively by developing a clear timeline for action and assigning responsibility for various activities to team members.
Don’t forget about outside parties
Preparation also requires keeping in mind the aspects of a university’s operations -- such as construction work -- that involve outside parties.
If a school carries out construction projects throughout the year, it needs to make sure it has the final contractor statements for work performed through the school’s year-end. This helps ensure it has proper cutoff and accrual of construction costs. Additionally, there may be costs associated with activities such as asbestos removal. A university may need to hire an outside specialist to perform an environmental study and estimate how much asbestos needs to be removed to know its asset retirement obligation.
And if a school has publicly traded conduit debt or other obligations with a demand feature (for example, a put or tender option), it may need to work with lending institutions to extend letters of credit so it can continue classifying the debt as a long-term liability instead of a current liability.
Stay up-to-date on accounting standards
A core part of the planning process is maintaining an open line of communication with auditors throughout the year. In addition to helping the university prepare for the audit, this communication can also help school financial leaders stay up-to-date on accounting standards.
There are frequently new standards announced that may require universities to manage or track data differently. University financial leaders can educate themselves using various online resources, but one of the best ways to stay on top of new rules is to ask questions and lean on the auditor for information. The auditor can help the university understand the steps needed to comply with current and future regulations.
Create a culture of preparedness
There are myriad activities that impact the year-end audit for universities. Therefore, university financial leaders need to prioritize the audit and instill a culture of preparedness across the institution to ensure a consistently smooth process.
The quality of an audit has a lot to do with the planning that a university does before it starts. A commitment to planning ahead can result in fewer inefficiencies and delays when the auditors do their work. The universities that value the audit, make it a priority and plan for it will enjoy an easier and more beneficial process.
Jennifer Casacchia is an audit senior manager in the not-for-profit and higher education practices at Sikich LLP, a professional services firm.