What Are the Steps in The N&A Audit Process?

What Are the Steps in The N&A Audit Process?

What should an Association expect from the N&A audit process?

Timeframe: The total audit process from start to finish is approximately 6-8 weeks; depending on the complexity of the engagement, our available staffing, and the client responsiveness. It may be a little more, or less than this, depending on the time of year.

Order of work: Typically, we initiate the audits in the order of when the signed engagement letter was received. Due to the large number of audits we do each year, we initiate audits all year long, depending on state audit timing requirements.

Our audit process and work-papers are now 100% electronic.

There are 6 steps in the process:

  1. Request “Internal Control” Information for Audit Planning -  We send you a set of documents and questionnaires to complete related to your:
    1. Accounting process,
    2. System of internal control
    3. Management policies
    4. Information technology documentation
    5. Payroll System

    These forms need to be completed before the audit can start. There may still be a period of time before the audit starts, due to our current backlog; and based on when the signed engagement letter came in.

  2. Initiate Audit-Basic Financial and Manager Documents – When we are ready to start the audit work, we send you an email asking for the “Basic Financial Documents” which will include the following: Year-end Financial Statements, board packet (as applicable), annual General Ledger (GL) and the vendor invoices/accounting records for the year. You’ll then send in (electronically) everything you can from that request. We will then determine one of the following:
    1. 100% of your records are electronic, so no “on-site” visit is planned at your office, and we don’t need to arrange to pick up any paper records from you.
    2. We will schedule a “site visit” at your office at a later date to scan or test the documents that are not electronic.
    3. We will need to arrange to pick up (or ship) your records box(es) for those records that are not electronic. (We pay the shipping costs each way).

    At the same time we request “Basic Financial Documents” we will ask for “Manager Documents”, to include: Governing Documents, the most recent Reserve Study, and Board Minutes, for both the audit year and the following year, up to the time the audit is initiated.

  3. Pre-Audit Work - Once we have received your Basic Financial Documents and any paper records needed, the electronic audit file is then picked up by one of our “Pre- Auditors” who will ensure we have all documents, and will complete other preliminary audit work. You can expect that there may be additional electronic records/reports that they request from you, as the preliminary request includes only the basic documents needed to initiate the audit. At that point, the “Pre-Auditor” will look at the Association Financial Statements, GL, reconciliations and perform selected audit testing with the vendor invoices.

  4. Audit Work – Next, the file goes to one of our Auditors for the analytical testing and other audit procedures, as well as preparation of the Draft reports. (Occasionally, there is a delay between Pre-Audit and Audit, due to our Auditor backlog at the time.) During this phase, the Auditor will email you regarding questions on audit year transactions, missing data, information needed for the tax return, and present year activity up to the date of the audit report. (The date of the audit report is when we complete all of our procedures, and we are responsible for certain report disclosures up to the date of the audit report. This includes review of the present year financial statements, general ledger, budget, and board minutes).

  5. Review of Audit file, Draft Reports, and Tax Return - The file then transfers to one of our Managers for a detail review of all workpapers, reports, and tax return preparation. Then, the file proceeds to final review and sign off. The Draft Audited Financial Statements, Draft Report of Internal Control (as applicable), Draft Management Memo (as applicable) and final Tax Return (as applicable) are emailed to you. The Board officer is responsible for signing and filing the tax return with the IRS.

  6. Finalization – You will receive complete instructions to “finalize” when we send the Draft report(s) and tax return. Essentially, this includes Board review of the Draft reports and tax return, followed by signing and returning “Representation Letters” we emailed to you with the Drafts. (See a separate Audit FAQ regarding “Representation Letters.”). Once we receive the signed Representation Letters, this is our authorization from you to issue the final report(s). We review the report(s) one more time, and then email you a final copy that you may print and/or distribute. (At that time, if you request a printed/mailed copy of the report(s), we will mail those to you). You are responsible for mailing the tax return to the IRS.

At each of these six steps you may be contacted by various staff members to provide additional documents, to answer questions or to complete required audit documents. We appreciate your prompt responses to those inquiries, as this will improve the audit turnaround time. If we don’t receive timely responses, we will proceed to closing out the audit file with the information that we DO have. (Further delays in the audit process require us to continue to update our present year auditing procedures, so we need to close the file.) Depending on the situation, missing information may cause the audit opinion to be “Qualified” and/or Internal Control points in the Report of Internal Control.

Feel free to always ask questions of our staff, at any point along the way, as to the audit-tax process!