10 Tips for Your Upcoming Hospitality and Real Estate Audit
December 06, 2019
By Evan Gluck
As another year-end approaches, the angst of the upcoming annual financial statement audit quickly builds. Here are some best practices to prepare and make the audit as efficient and anxiety-free as possible.
- Be proactive and schedule planning calls with your auditors to discuss the upcoming audit. Have a timeline and list of required deliverables and clearly communicate them to the audit team in advance. That way, everyone has the same goals and can develop a plan to meet any deadlines. Also, assign responsibility to the proper individuals for proper follow-up as needed.
- Review all recently issued accounting standards, including ASC 606 and ASC 842. The Financial Accounting Standards Board’s website is a great resource. Compile and research any questions as required, and contact your audit team early in the process to discuss.
- Review prior years’ audit adjustments and management letter comments to ensure they have been addressed and, if they haven’t, prepare a plan to address previously raised issues.
- Review any major changes that have occurred during the year, and ensure all related documentation is appropriately updated and accessible. Review any key areas for an audit, such as property valuations and impairment considerations. Year-end closing procedures should include proper preparation of reconciliation schedules, which may be contained in the auditor’s requests. Update any relevant memos, internal control process narratives and procedures, roll forwards, and accumulate proper documentation. Items to proactively provide to the auditors could include updated cost segregation studies completed for the various properties, new reporting requirements or significant changes to the financial statements, discontinued operations, and major impairments.
- Obtain a request list from the auditor to ensure all significant and time-consuming audit areas are addressed and reconciled as needed. While the auditor may not request all supporting documents and schedules, make the information used to complete the related schedules easily accessible and available upon the auditor’s request.
- Prior to fieldwork, brief company staff who will be working with the auditors by ensuring they are aware of key dates and timelines to complete the audit tasks.
- If any of the tasks requested by the audit team are unclear, ask the auditors to clarify and provide examples of schedules to the auditors to review in order to ensure that all required information is available when needed. This will prevent additional requests toward the end of the audit.
- Identify and document revenue recognition considerations and internal control processes for all revenue streams, and compile supporting documentation for detailed transaction reports as required. Folio reports, lease agreements and supporting documentation, such as cash receipts, may be time consuming to pull. As such, ask the auditors to select these well in advance of the fieldwork so that you and your employees can accommodate the requests.
- Agree to the frequency of status meetings with the audit team, which could be daily or weekly, to discuss the progress of the audit and related requests to make sure the audit is on schedule. Address any issues raised at the meetings within a reasonable timeframe.
- Make sure that you and your team are available during the fieldwork. Auditors understand company employees have daily responsibilities. However, it is important for them to be available to answer questions to advance the audit smoothly and on schedule. Not all answers have to be provided on the spot, but make every effort to provide a timely response to audit requests. Completing the request correctly and comprehensively can prevent follow-up questions and delays.
Preparing and having open communication with both employees and the audit team will help lead to a timely, accurate audit that complies with reporting requirements and lending covenants.