Parsley
Sage Rosemary & Ginsburg llp
“always a reasonable result for a
reasonable fee, always”
MEMORANDUM
To:
|
Accounting
Department
|
From:
|
Mike
Marget
|
Date:
|
March
9, 2012
|
Re:
|
The Auditors are Coming! -- Audit Binder
|
Good
meeting yesterday with the auditors from Beane & Beane, CPAs. The following are my notes from the meeting
concerning the Audit Binder.
The
Audit Binder is nothing more than the assemblage of all the materials we need
to produce for the auditors so they can begin, then complete their work. The term “binder” – as you probably gathered
– is a bit of a misnomer since they prefer most of the information be presented
in spreadsheet formats or as PDFs in the case of documents. The “audit jump drive” might be a better name
for the thing (remember, you read it here first, but it is unlikely to catch
on.)
Here’s
what we should be prepared to include in the Audit Binder, subject to further
instructions from the auditors that some of this stuff can be skipped or
reduced in quantity:
1) Trial balance showing
current year-end numbers opposite prior year numbers;
2) Draft financial
statements – the one’s we prepared as of year-end this year and last, with an
explanation of significant category or account balance variations from
year-to-year;
3) Copy of the general
ledger for the year;
4) Copy of the firm’s
policies and procedures manual, with any changes from the prior year highlighted;
5) Memo explaining any
changes in the accounting system (e.g., new software) or changes in how we
process transactions or reflect transactions in the general ledger or financial
statements.
6) PBC (Prepared by Client)
Schedules:
a.
Copy
of all bank account reconciliations for the year;
b.
Subsidiary
ledger detailing trust account balances and activity for the year;
c.
Subsidiary
ledger detailing client retainer balances activity for the year;
d.
Aging
of work-in-process fees, expenses and costs advanced;
e.
Aging
of accounts receivable;
f.
Capital
asset additions and retirements, with depreciation lapsing schedule;
g.
Accrued
liabilities as of year-end, including profit-sharing/401k contributions
payable;
h.
Detail
supporting all other asset and liability accounts;
i.
Schedule
detailing changes in partner capital accounts;
j.
Copy
of the budget for the year just ended;
k.
Copies
of prior year-end tax returns, Forms W-2, 1099 and draft K-1s;
l.
Summary
of all financial-related loan covenants, including ratios indicating the firms
compliance;
m.
Analysis
of payments made to outside lawyers; and
n.
Summary
of outstanding litigations involving the firm as a party.
7) Transaction
documentation – it is not uncommon for the auditor to select certain invoices,
vendor disbursements and expense account distributions for review during field
work;
8) Tax information:
a.
Signed
copy of the most recent tax return;
b.
Draft
copy of the current year’s return or information;
c.
Any
correspondence between the firm and federal, state or local taxing authorities;
9) External verification
letters:
a.
Letter(s)
signed by an authorized bank account signer directing banks to verify year-end
account balances directly to the auditor’s mailing address;
b.
Letter(s)
to outside counsel, signed by a member of the firm, directing counsel to write
letter to the auditor concerning potential loss contingencies;
10)Firm documents:
a.
Most
recent partnership agreement and other governing documents;
b.
Minutes
of Management Committee meetings;
c.
Copies
of any new merger or later hiring agreements;
d.
Copies
of any new loan agreements, equipment or real estate leases, or other
significant agreements made or modified since the prior year; and
11) Information as to
Changes in Firm Management or Structure:
a.
New
member of the Management Committee;
b.
Any
changes in key administrative or accounting personnel.
I
know this looks like a daunting list, but all of the information is or should
be at our fingertips. We can meet again
next week and assign tasks to get all of this material gathered and organized
in advance of the auditors’ arrival.
Our
goal is to keep ahead of the audit work; anticipate their needs; keep them busy
at all times (not waiting for us); answer their questions; and eventually get
them packed up and out of the office as quickly as possible. We can do this!
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