Professional Services Annual Audit Preparation
A comprehensive procedure for preparing the organisation financial records, working papers, and supporting documentation for the annual external audit.
Purpose
To ensure a smooth and efficient annual audit by providing auditors with well-organised, complete, and accurate financial records, working papers, and supporting documentation, minimising audit queries and additional fees.
Scope
Covers all preparation activities leading up to and during the annual external audit, including year-end close procedures, preparation of the audit file, coordination with auditors, and resolution of audit queries.
Prerequisites
- Year-end close is complete with all reconciliations and adjustments finalised
- The audit engagement letter has been signed and the audit timeline agreed with the auditors
- Prior-year audit management letter and recommendations have been reviewed
- Access to all financial records, contracts, and supporting documentation for the audit period
Designed to meet professional indemnity requirements, client confidentiality obligations, and industry body reporting standards.
Step-by-Step Procedure
Review Prior-Year Audit Findings
Review the prior-year audit management letter and ensure all recommendations and findings have been addressed.
- 1.1Retrieve the prior-year audit management letter and any interim findings
- 1.2Check the status of each recommendation and document actions taken
- 1.3Identify any outstanding items and prepare explanations or plans to address them
- 1.4Brief the audit team on the status of prior-year findings
Complete Year-End Close
Finalise all year-end close procedures including final reconciliations, accruals, provisions, and adjustments.
- 2.1Complete all monthly reconciliation procedures for the final month of the year
- 2.2Post year-end adjustments including depreciation, provisions, and accruals
- 2.3Reconcile all balance sheet accounts to supporting documentation
- 2.4Finalise the trial balance and confirm it is in balance
Prepare the Audit File
Assemble the audit file containing all schedules, reconciliations, and supporting documentation requested by the auditors.
- 3.1Obtain the auditor Prepared By Client (PBC) request list
- 3.2Prepare each schedule and document requested, with clear referencing
- 3.3Include all balance sheet reconciliations, bank confirmations, and legal confirmations
- 3.4Prepare the draft financial statements in the required format
- 3.5Organise the file logically with a table of contents and cross-references
- Start preparing PBC items as soon as the request list is received — do not wait until the auditors arrive
Request External Confirmations
Arrange for external confirmations requested by the auditors, including bank confirmations, debtor confirmations, creditor confirmations, and legal confirmations.
- 4.1Send bank confirmation requests to all financial institutions
- 4.2Send debtor confirmation letters to selected customers as per the auditor sample
- 4.3Send creditor confirmation letters to selected suppliers as per the auditor sample
- 4.4Request legal confirmation from the organisation solicitors regarding any pending litigation
Coordinate the Audit Fieldwork
Provide logistical support during the audit fieldwork including workspace, system access, and timely responses to queries.
- 5.1Set up a dedicated workspace for the audit team with necessary equipment
- 5.2Provide system access as required for the auditors to run reports
- 5.3Designate a primary point of contact for all audit queries
- 5.4Schedule regular check-in meetings with the audit team to discuss progress and issues
Respond to Audit Queries
Track and respond to all audit queries promptly, providing additional documentation or explanations as requested.
- 6.1Maintain a centralised query log to track all auditor requests
- 6.2Assign responsibility for each query to the appropriate finance team member
- 6.3Set a target response time (e.g., within two business days) for all queries
- 6.4Escalate complex queries to the Finance Manager for resolution
- Prompt responses to audit queries reduce the likelihood of audit overruns and additional fees
Review Draft Audit Report and Management Letter
Review the draft audit report and management letter from the auditors, discuss any findings, and agree on final adjustments.
- 7.1Review the draft audit opinion and financial statements for accuracy
- 7.2Discuss any proposed audit adjustments and agree or negotiate each item
- 7.3Review the management letter findings and prepare responses
- 7.4Confirm the final adjusted financial statements
Finalise and Sign Financial Statements
Prepare the final version of the financial statements incorporating all agreed audit adjustments, and obtain director sign-off.
- 8.1Incorporate all agreed audit adjustments into the financial statements
- 8.2Prepare the directors report, notes to the accounts, and any required disclosures
- 8.3Present the final financial statements to the board for approval and sign-off
- 8.4Provide the signed financial statements to the auditors for issue of the audit report
Archive Audit Documentation
File all audit-related documentation including the signed financial statements, audit report, management letter, and all working papers.
- 9.1Save the final signed financial statements and audit report
- 9.2File the management letter and management responses
- 9.3Archive all PBC items and audit working papers
- 9.4Create a carry-forward file of items to address for next year audit preparation
Quality Checkpoints
Common Mistakes to Avoid
Expected Outcomes
The audit is completed and the audit report issued within the agreed timeline with no overruns.
Fewer than three audit adjustments are required, indicating a high-quality year-end close.
Actual audit fees do not exceed the agreed budget, reflecting efficient preparation and minimal additional work.
Frequently Asked Questions
What is a management letter?
A management letter is a communication from the auditors to management and those charged with governance, identifying deficiencies in internal controls, accounting issues, and recommendations for improvement.
Who signs the financial statements?
The financial statements are typically signed by two directors of the company. For incorporated associations or other entity types, check the governing legislation for specific requirements.
What is a PBC list?
A Prepared By Client (PBC) list is a schedule of all documents, reconciliations, and information that the auditors need the client to prepare and provide before or during the audit fieldwork.
When should audit preparation begin?
Audit preparation should begin at least six weeks before the auditors planned fieldwork start date. Reviewing the PBC list and starting early reduces pressure and improves the quality of the audit file.
What if we disagree with a proposed audit adjustment?
Discuss the adjustment with the auditors and provide your rationale for disagreement. If the matter cannot be resolved, the auditor may issue a modified audit opinion or note the unadjusted difference in their summary of audit misstatements.
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