Audits can feel overwhelming, but they don’t have to be. With the right preparation and processes, an audit can become a valuable tool for improving your construction company’s financial health and credibility. This step-by-step guide will walk you through everything you need to know about preparing for, conducting, and following up on an audit. From establishing airtight bookkeeping systems to communicating effectively with auditors and leveraging professional resources, these actionable insights will help you approach your next audit with confidence and ease.
Preparing for the Audit
A construction company’s audit preparation begins with establishing strong bookkeeping and accounting processes. Solid procedures ensure that all necessary information can be gathered efficiently, helping the audit proceed smoothly and saving time and money.
Standard Operating Procedures (SOPs) for Financial Close
Implementing SOPs for month-end and year-end financial close is essential. These should include:
- Recording all transactions and receipts: Ensure every financial activity is documented.
- Reconciling bank and credit card accounts: This ensures all entries are accurate and nothing is missing.
- Verifying asset records: Confirm that all assets are correctly recorded on the balance sheet.
- Updating liabilities and depreciation: Include monthly depreciation for assets and update loans by reconciling vendor statements to record balances and interest expenses accurately.
Internal Audits for AR and AP
Regular internal audits of accounts receivable (AR) and accounts payable (AP) are critical:
- Accounts Receivable (AR): Generate an aging report to list outstanding invoices by overdue periods (e.g., 30, 60, or 90 days). Review the report to ensure accuracy and remove outdated or erroneous entries.
- Accounts Payable (AP): Apply the same review process to identify and address discrepancies in outstanding payables.
Attaching Receipts to Transactions
A best practice for audit preparation is attaching images of receipts to transactions in accounting software like QuickBooks. This simplifies providing documentation when auditors request details, eliminating the need for time-consuming searches.
Audit Process
When undergoing an audit, a construction company should prioritize providing the auditor with the required information as quickly and efficiently as possible. If strong bookkeeping processes are already in place, accessing and delivering the necessary data will be much easier.
Prompt Communication
Responding promptly to the auditor’s inquiries—whether by email, text or in person—is essential. Timely responses prevent unnecessary delays, keep the audit on track, and save both time and money. This responsiveness is arguably the most critical action a company can take during an audit.
Transparency with Financial Data
It’s also important not to fear the numbers. Audits can be stressful, but attempting to adjust or manipulate data will only complicate the process. Instead, focus on presenting the numbers as they are. Transparency ensures that the audit progresses smoothly and avoids unnecessary setbacks caused by discrepancies or inaccuracies.
Reliable Documentation and Preparation
To successfully pass an audit and earn approval from the auditor, rely on well-documented processes and accept the figures as they stand. This transparency builds trust and ensures that the audited financials are dependable for key stakeholders, such as investors, banks, or bond companies.
Construction companies can approach audits confidently and achieve positive outcomes by focusing on clear communication, accurate reporting, and thorough preparation.
Post-Audit Actions
Completing an audit is a significant milestone for any construction company, and the first step post-audit should be to celebrate. The audit process often brings a lot of tension, so successfully navigating it is an achievement worth acknowledging—for both the company and the auditor.
Maintain and Improve Processes
After the celebration, focus on maintaining the bookkeeping and accounting processes that supported the audit’s success. Most auditors provide notes and recommendations for improvement. These suggestions should be taken seriously and implemented promptly to enhance your processes.
Prepare for Future Audits
By addressing the auditor’s recommendations, your company can demonstrate progress and improvement during future audits. This not only makes the next audit more efficient but also strengthens the company’s financial management and credibility with stakeholders.
How Jeremy Can Help
I can help your construction company with audit preparation and compliance in two key ways:
1. Setting Up Internal Systems
I’ll work with you to establish strong accounting processes that ensure your bookkeeping is thorough and audit-ready. By creating reliable internal systems, we can help you maintain organized, accurate records that auditors can confidently review.
2. Providing Professional Bookkeeping and Accounting Services
Through Foundation Accounting, I also offer bookkeeping and accounting services. I’ve already implemented proven, reliable processes that auditors trust. Whether you need help setting up your own system or prefer to outsource your bookkeeping, I have the tools and expertise to simplify the audit process and keep your financials in compliance.
With my support, you’ll be ready to confidently tackle audits, knowing your systems and records are prepared for success.
Additional Resources
For construction companies facing audits—whether a tax audit, workforce services audit, or Department of Labor audit—the most important resource is a strong network of experts to support you through the process.
Key Experts to Have on Your Team
- Tax Lawyers, Preparers, and Accountants
- Having a tax professional present during an audit is invaluable. They can guide you through the process, explain your financial records, clarify deductions, and ensure income and other details are properly addressed. A knowledgeable tax expert is likely the single most critical resource for successfully navigating an audit.
- Specialized Advisors for Specific Audits
- For audits like a Department of Labor review, working with advisors who are experienced in those processes can provide additional insight and ensure compliance with all requirements.
Additional Resources and Partnerships
- Workers’ Compensation Insurance Agents
- Purchasing workers’ compensation insurance through an agent rather than directly through the state offers additional benefits during an audit. Agents can provide expert support, making the process smoother and less stressful.
Building a network of trusted professionals and leveraging their expertise can make a significant difference in confidently navigating audits and ensuring a successful outcome.
Conclusion
Conducting an audit doesn’t have to be a stressful experience. With strong bookkeeping practices, clear communication, and the right team of experts by your side, your construction company can not only pass an audit with ease but also use the process to strengthen your financial systems and credibility. By staying transparent, organized, and proactive, audits can become opportunities for growth and improvement rather than a source of anxiety. With proper preparation and the willingness to implement recommendations, you’ll set your company up for long-term success and ensure smoother audits in the future.
Access our trusted network of professionals and ensure your audit readiness today!
