How to Prepare for an Audit: Financial Confidence Through Year-Round Readiness

Finance and accounting professionals can find that preparing for an audit feels like managing a slow-moving pressure system. It builds quietly over the fiscal year and arrives with last-minute scrambling. But embracing audit readiness as a discipline — not just a deadline — reinforces trust, drives operational clarity and reduces year-end stress.

Whether you’re operating within a not-for-profit, government agency or private company, audit preparation reflects internal culture, financial integrity and strategic maturity.

THE AUDIT’S TRUE ROLE

At its core, an audit is the independent verification of an organization’s financial records to ensure they’re free from material misstatements and aligned with generally accepted accounting principles (GAAP). Audits often go beyond the basics at not-for-profits and government-funded organizations.

They may include:

• Uniform Grant Guidance (UG) audits, focusing on compliance with grant terms and control systems
• Government Auditing Standards (GAGAS), emphasizing internal controls over financial reporting
• Reviews of program effectiveness and operational efficiency

Audits can also bring clarity to key stakeholders by identifying and communicating areas of significant risk for material misstatement. They help boards and executive teams understand not only where funds are flowing, but how operational risks are managed and how reporting systems support long-term goals. When viewed through that lens, audits aren’t just regulatory hurdles — they’re tools for transparency, improvement and strategic insight.

WHY AUDIT READINESS MATTERS

One of the most common missteps finance teams make is assuming audit readiness begins when the scheduled audit week begins. Audit readiness starts well before the fiscal year ends. The most reliable way to ensure a smooth audit is to treat each month-end close like a rehearsal. Monthly reconciliations, documentation reviews and stakeholder communication build a foundation that auditors can confidently review.

Your documentation should evolve with your organization. Any new program, major contribution, debt agreement or system rollout needs to be accounted for — and clearly communicated with your audit firm.

Audit preparation also depends on internal clarity. The audit trail is traceable and professionally maintained when deadlines and responsibilities are assigned. When organizations prepare thoughtfully for an audit, they gain:

• Lower costs due to fewer delays and adjustments
• Timely issuance of final reports
• Less stress across departments
• Stronger financial narratives for boards, donors and regulators

FIELDWORK: FROM PLANNING TO EXECUTION

Before fieldwork officially begins, auditors will typically issue a detailed preparation checklist with deadlines. This request list becomes the guiding framework for the engagement. Organizations should aim to upload documentation electronically via a secure portal — not email — to protect sensitive information and maintain an organized record of the audit trail.

Maintaining close communication between the organization and its auditors is key to success. Consult with your auditor in the event of:

• Being unsure of how to record a transaction
• Infrequent or unusual transactions
• A new legal entity or controlled organization
• A merger
• Actual or suspected fraud
• Pending or threatened litigation

Meetings throughout the year help both the organization and its auditors stay aligned, minimizing the risk of surprises at audit time. As GAAP experts with access to research resources, auditors appreciate the opportunity to consult year-round and provide guidance on new or unfamiliar situations.

Before the audit begins, the auditors and key management staff should hold a planning meeting to address significant items not yet covered throughout the year, such as:

• Starting or closing a major program
• Receiving a large grant or donation
• Initiating significant leases or long-term contracts
• Adopting a new accounting, payroll or billing system
• Leadership transitions or organizational restructuring
• Legal matters, including litigation or suspected fraud

During preliminary fieldwork, auditors focus on understanding internal controls and conducting walkthroughs of major transaction cycles. These include cash receipts and disbursements, payroll, accounts payable and receivable, and grant activity. Auditors will also ask IT-related questions, such as:

• What systems house financial data?
• How is data backed up?
• Have there been any security breaches?
• How are user access rights managed?
• Is there a defined risk management process?

Final fieldwork involves deeper sampling, requests for documentation and evaluation of proposed journal entries. If control deficiencies or compliance concerns are uncovered, they’ll be reported to management and potentially included in official communications to boards or regulators. 

COMMON AUDIT ISSUES AND HOW TO STAY AHEAD

Auditors frequently uncover challenges that, while not catastrophic, can damage credibility or delay reporting:

• Improper expenditures: Using funds outside of intended purposes
• Lack of documentation: Incomplete records or missing approvals
• Weak internal controls: Gaps that could lead to error or fraud
• Compliance failures: Overlooked conditions in grants or agreements

These issues are preventable. The key is to build audit preparation into routine operations, rather than react when auditors arrive.

SMART HABITS FOR FINANCIAL TEAMS

There’s no single trick to making audit preparation smooth but some practices go a long way:

• Request a pre-audit checklist from your auditor and work through it regularly.
• Reconcile all balance sheet accounts monthly and verify against external data.
• Document every approval, review and adjustment. If it’s not documented, it didn’t happen.
• Keep a close eye on reconciling items. Large, unexplained or aged entries (over six months) can raise concerns.
• Review last year’s audit adjustments and confirm they’ve been resolved.

Teams should also understand the difference between cash and accrual reporting, the logic behind reconciliations, and how journal entries impact the overall financial picture. These fundamentals often serve as audit talking points and moments of education or correction.

TIPS THAT KEEP AUDIT COSTS DOWN

While audit fees may be fixed, the actual labor cost and resources can balloon without strong preparation. The secret? Organization, transparency and responsiveness.

Avoid extra costs by:

• Keeping records complete, organized and accessible
• Staying ahead of monthly and annual closing responsibilities
• Alerting auditors early about delays, changes or missing data
• Ensuring availability of knowledgeable team members during fieldwork
• Maintaining strong internal controls through regular self-assessments

AUDITORS ARE ALLIES

It’s worth remembering that auditors aren’t adversaries. They’re resources with specialized knowledge who can identify not just issues, but opportunities. The experience improves for everyone when finance teams engage auditors early, communicate openly and treat the engagement as a partnership. Audit readiness is a signal that the organization is thoughtful, proactive and transparent in how it manages its resources.

About Our Authors

Lauren Groff, CPA, is the leader of the not-for-profit audit services team at Sikich. She has expertise in audit engagement planning, supervision of fieldwork, and report preparation for not-for-profit clients. Lauren works closely with higher education institutions, associations, voluntary health and welfare organizations, healthcare entities, civic and community organizations and religious organizations. She also has extensive experience auditing federal award programs in accordance with Uniform Guidance.

Leary Morris, CPA, is a director on the not-for-profit services team at Sikich. Leary has extensive public accounting experience working with social services organizations, membership organizations, private colleges and universities, Title IV schools and more. In her current role, she oversees engagement teams, working directly with staff members and alongside clients.