We sat down with Noorus Khan, Partner with the Firm, and asked:
What can clients do to make their year-end audits run smoothly?
It is primarily about communication. Communicate with us during the year. Let us know about any unusual or complex transactions that you are contemplating or have already entered into. This will help avoid unexpected delays in the audit. If technical experts become involved then, that can cause additional fees and delays.
Do you encourage your clients to come to you during the year, and not just at year-end?
Yes. We are involved throughout the year. We encourage our clients to reach out to us during the entire year and during the planning stages. The better communication we have throughout the year makes the planning easier, and the audit itself run as efficiently as possible.
A big purchase, new transactions with a bank, or ownership changes would be examples of things we'd like to know about during the year.
Financial reporting requirements change quite frequently. How do you help your clients stay abreast of this changing landscape?
During the year, we communicate with each client as to changes in financial reporting that apply specifically to them. We send emails, newsletters, and hold meetings about significant changes, with the client. Then at year-end, we have our planning meeting which includes changes during the year that impact their reporting.
Can the client contact you for specific help to implement these accounting and reporting changes?
Yes. We encourage that. This is better than finding issues during the audit. If we can catch problems early and resolve them, everything else goes more smoothly. An example of this is the Revenue Recognition pronouncement which will require additional time for us, as well as for our clients.
What else happens during your audit planning meeting?
This is the meeting that takes place near year-end. We give a "prepared by client" list to the client. It is basically a checklist of documents and due dates that we are requesting during the audit. We have found that this checklist keeps things progressing smoothly.
We ask that the CFO, Controller, or owner communicate with their staff as to the audit timing, and that various analyses be timely prepared. The client is asked to ensure that the books are closed, all accounts reconciled and the trial balances are ready, prior to the start of the audit.
Once the auditing starts, how does all the pre-planning contribute to the end product?
Clients can often think, "The auditors are here, so let's just give them something so that they can get started." More often than not, this method will just cause delays. Inefficiencies in the audit process result when we are given only partial information. Pre-planning should eliminate this kind of thing from happening.
During the audit we look at internal controls and test internal controls. We observe the client's business processes. We communicate during the audit, any areas we observe that need improvement. We also issue a management letter at the end of the audit detailing what we found along with our recommendations for improvements in both the processes and the internal controls.
Will you help your clients with the implementation of management letter recommendations?
Yes. We encourage clients to come to us for assistance with questions or in the actual implementation of management letter suggestions.
What does your audit client base look like?
Our audit clients are typically closely held companies ranging in size from one million to $200 million in revenues. We audit pharmaceutical, transportation, retail, wholesale, and manufacturing clients; and also perform ERISA based audits.
What are some of the more significant changes in the financial reporting requirements this year?
Our clients are affected by some, or all, of the following FASB pronouncements. If anyone needs more information on this list or anything else contained here, please contact me.
•ASU 2015-01 – Extraordinary and unusual items: this standard removes the concept of extraordinary items to simplify income statement presentation.
•ASU 2015-02 – Consolidation: amendments to the consolidation process for certain legal entities such as limited partnerships, limited liability corporations, and securitization structures.
•ASU 2015-03 – Presentation of debt issuance costs: simplifies the presentation of debt issuance costs as an offset to the related debt instead of as being presented as a deferred charge asset. 2015-03 is further amended by ASU 2015-15.
•ASU 2015-04 – Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets: addresses differing month-end issues with asset measurement for a defined benefit plan.
•ASU 2015-05 – Customer’s accounting for fees paid in a cloud computing arrangement: provides guidance to customers in the case of inclusion of a software license.
•ASU 2015-06 – Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions
•ASU 2015-07 – Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent): removes the requirement to categorize assets that are measured using net asset value within the fair value hierarchy.
•ASU 2015-08 – Pushdown Accounting – Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115
•ASU 2015-09 – Disclosures about Short-Duration Contracts: applies to issuers of short-duration insurance contracts and amendments requiring insurance entities to have new disclosures.
•ASU 2015-10 – Technical corrections
•ASU 2015-11 – Inventory: Simplifying the measurement of inventory by changing from lower of cost or net realizable value. Does not apply to LIFO inventory
•ASU 2015-12 – Benefit Plan Reporting: amendments establish contract value as the only required measure for fully benefit responsive investment contracts. Eliminates certain disclosures for investments representing 5 percent of more of net assets, and presentation of net investment income by investment type.
•ASU 2015-13 – Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets
•ASU 2015-14 – Revenue Recognition: Defers the effective date of ASU 2014-09 – Revenue Recognition to years beginning after December 15, 2018.