Key takeaways
- Agree the scope and the PBC list before fieldwork, not during it.
- Give every PBC item an owner and a due date.
- Reconcile the ledgers and the significant accounts before the team arrives.
- Keep one open-items list and update it daily during fieldwork.
Understand the scope
An audit and a review are different engagements. An audit gives an opinion and requires more procedures; a review gives limited assurance and requires fewer. The engagement letter defines the scope, the timeline and the client's responsibilities.
Read the engagement letter with the client's controller or finance lead. The client should know what the team will test, what the client has to prepare and when the fieldwork starts.
Confirm the reporting deadline and the board or lender date that depends on it. A late audit is usually a late document, not a late auditor.
Build the PBC list
PBC means prepared by client. The list should group the items by audit area: planning, revenue, expenses, cash, fixed assets, debt, equity, tax and subsequent events.
Each item should name the document, the period and the format. "Accounts receivable aging as of December 31, in Excel" is easier to prepare than "AR support."
Send the list four to six weeks before fieldwork. A list that arrives the week fieldwork starts is already late.
Assign owners and dates
Every PBC item needs one owner and one due date. The controller should own the list and assign the items to the person who can actually produce them.
Use a shared status, not a spreadsheet in one person's inbox. The team should see what is open, what is late and who is responsible.
If an item depends on a third party, such as a bank confirmation or a vendor statement, mark it as waiting and note the request date.
Prepare the ledgers
The trial balance and general ledger should be in a format the team can use. A PDF of the general ledger is not a usable export.
Reconcile every bank, card and loan account before the team arrives. The reconciliations are a PBC item, but the client should also fix the differences the reconciliations reveal.
Post the year-end adjustments before the team starts testing. A late adjustment changes the trial balance and the support the team has already reviewed.
Support the significant accounts
The team will spend most of its time on the significant accounts: cash, receivables, inventory, fixed assets, debt and revenue. Prepare the support for those accounts first.
For revenue, have the contracts, the invoices and the cutoff support ready. For receivables, have the aging, the collection history and the allowance calculation. For fixed assets, have the register, the additions and the disposals.
For debt, have the agreements, the statements and the covenant calculations. A missing covenant calculation can delay the audit report.
Manage the fieldwork
Keep one open-items list during fieldwork. Update it daily and send it to the team at the end of the day. A list that is updated once a week becomes a list of surprises.
The client should have one contact for the audit team. Five contacts produce five versions of the same answer.
When the team asks for an explanation, answer in writing if the item affects the financial statements. The written answer becomes part of the support.
Close out
Review the audit adjustments and the final trial balance before the report is issued. The client should approve the adjustments and understand the effect on the financial statements.
Sign the management representation letter at the end of the engagement, after the final numbers are agreed.
Keep the PBC list, the adjustments and the final trial balance with the audit file. The next year's preparation starts from the same list.