Audit adjustments can significantly impact your organization’s financial statements. It’s essential to evaluate their regulatory compliance effects and determine potential internal control deficiencies that may prevent you from detecting misstatements.
Though many audit adjustments are common, there are various measures you can take to avoid these corrections and ultimately improve your internal operations.
What Are Audit Adjustments?
Audit adjustments are proposed corrections that outside auditors make for your company’s general ledger. These corrections come from financial misstatements, errors or items discovered during auditing procedures that may require revision or reclassification to different accounts. Your business must correct these issues before your auditors will sign off on the audit report.
Common Audit Adjustments
Companies run into many common audit adjustments depending on their financial activities. They can range from verifying financial reporting accuracy to adjusting incorrectly classified accounts.
Some frequently occurring audit adjustments include:
- Prepaid expenses: Assets that are paid for and used gradually, such as office supplies.
- Depreciation: The process of allocating or distributing asset costs over the asset’s useful life.
- Net assets: Assets and contributions with donor restrictions.
- Accrued revenues: Revenue earned during one accounting period that isn’t received or recorded until a later period.
- Straight-line rent: The total liability under a rental agreement that should be charged over the contract term on an even, periodic basis.
- Accrued expenses: Expenses that occurred in one accounting period but will be paid during a later period.
How to Avoid Audit Adjustments
Though audit adjustments may seem unpreventable, there are ways to elude them. You can avoid even the most common audit adjustments by taking the following precautions:
- Perform self-audits: Frequent misstatements indicate that your company’s financial processes require remediation. Consider self-auditing any significant transactions, receipts, disbursements and potential variances to catch errors before they occur.
- Review financial statements: Management should regularly review your company’s general ledger, cash receipts, cash disbursement journals and subsidiary ledgers to confirm that these balances are reconciled accurately. Frequent reviews are evidence of effective internal controls and timely corrections.
- Monitor nonroutine transactions: It be can be easy for nonroutine transactions to slip through the cracks, as these periodic activities are not typically part of your routine flow of transactions. Consider reviewing these transactions regularly to account for them.
Schedule Audit and Assuarnaces Services at Marshall Jones
You can avoid audit adjustments with the help of the audit and assurance experts at Marshall Jones. We’ve spent over 35 years providing excellent client service to customers across Atlanta with exceptional technical competency and complete integrity.
Contact us for more information on the audit process and our services today!