Organizations that understand how auditors verify account balances and transactions can minimize disruptions during audit fieldwork and maximize the effectiveness of financial statement audits. Here’s a summary of the types of “substantive evidence” auditors gather to help them form opinions regarding your financial statements.

Original source documents

Auditors can verify an account balance or record by vouching (or comparing) it to third-party documentation. For example, an auditor might verify the existence of a machine on your company’s fixed asset register by reviewing the invoice from the seller. Vouching enables an auditor to evaluate the accuracy of the amount recorded and whether the transaction was entered correctly in the accounting system.

Physical observations

Seeing is believing. Auditors sometimes verify the existence of assets through physical observations and inspections. For example, inventory audit procedures typically include observing or conducting a physical inventory count, inspecting the process to record incoming and outgoing inventory, and analyzing the inventory obsolescence process.

Confirmation letters

Auditors send letters to third parties — such as customers, banks or vendors — asking them to verify amounts recorded in a company’s books. There are two types of confirmations: A positive confirmation requests that the recipient complete a form confirming account balances (for example, how much a customer owes the company). A negative confirmation requests that the recipient respond only if the balance is inaccurate.

Comparisons to external market data

For assets actively traded on the open market, auditors may research pricing data to confirm the amounts claimed on the company’s financial statements. For example, if a company invests in marketable securities that it plans to sell within the year, the auditor could analyze the prevailing market prices to confirm their book value. Likewise, a random sample of parts inventory could be compared to online pricing sheets to confirm that items are reported at the lower of cost or market value.

Independent calculations

Auditors may verify internally prepared schedules and reports by re-creating them. If the auditor’s work matches the client’s version, it confirms that the underlying accounts appear reasonable. Auditors often rely on this procedure for such items as bank reconciliations and schedules of payroll-related expenses (for example, overtime, benefits and tax payments).

Collaboration is critical

An effective audit requires coordination between the audit team and the client. As we wrap up the audit of your 2022 financials, let’s work together to review the types of substantive evidence that were used for each major financial statement category. Contact us here. This process can identify potential bottlenecks in the auditing process and help you anticipate document requests and inquiries, making your next audit more efficient.

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QuickBooks® provides an all-in-one solution that helps some small and medium-sized businesses manage their finances. While QuickBooks provides the accounting backbone for many companies, it has advanced features that go beyond basic bookkeeping tasks.

For example, the time-tracking functionality in QuickBooks captures the hours spent on a specific project and makes it easier to bill clients in real-time. Additionally, third-party data feeds and integrations can reduce your administrative burden.

Here’s an overview of the platform’s lesser-known capabilities:

Mobile app. You can download an app for smartphones and tablets to access your financial data anywhere, anytime. This feature allows you to track your business finances in real-time and quickly pivot as needed.

Reminders and alerts. You can set up automatic reminders for recurring bills and alerts that tell you when cash balances fall below a specific threshold or inventory levels are nearing the reorder point.

Profitability reporting. The software can help you determine profitability by tracking project-related time, expenses and revenue. This makes it easier to bill customers quickly and accurately.

Customer and vendor tracking. You can store customer and vendor information, including contact information, transaction and payment history, and notes.
Customized invoicing. Custom invoices can be created with your logo. The software can also facilitate customer payments with credit cards, the Automated Clearing House (ACH) and online payment platforms, such as PayPal or Venmo.

Purchase and sales order management. Built-in purchase and sales order management systems allow you to track incoming orders and outgoing shipments more effectively.

Bank and credit card data feeds. You can import transactions from bank accounts and credit cards, then classify each transaction within your accounting records. Additionally, you can enable system-generated classifications for recurring transactions or create rules manually.

Payroll administration. Users can administer payroll data within QuickBooks, making it easier to manage payroll processes on one platform and comply with tax laws.
Third-party integrations. Many third-party applications — including payment processors, payroll systems and e-commerce platforms, such as Amazon Business, PayPal, Square, and Shopify — work with QuickBooks.

We can help

If you understand QuickBooks’ full functionality, it can streamline your accounting processes, improve the accuracy and timeliness of your reporting, and make it easier to do business with your company. It can also facilitate communications between in-house and external accountants. In addition to providing your CPA with direct online access to your organization’s books, QuickBooks allows your accountant to send requests for information and documents through the platform. Contact us with any additional questions you have about QuickBooks and other accounting software solutions.

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Are you looking for someone to manage the books and records for your small business? Whether you’re operating a startup or an established business that recently lost its bookkeeper, hiring the right person for these tasks can be challenging.

Selecting a candidate in today’s job market requires a rigorous process. It’s important not to be hasty or wing it during the interview. Give your job posting adequate time to attract a healthy sample of qualified candidates. Write up a detailed job description with the help of your management team. Then brainstorm a comprehensive list of questions.

Here are 10 questions to consider in the brainstorming process.

1. How many years of bookkeeping experience do you have, and are you familiar with U.S. Generally Accepted Accounting Principles (GAAP)?
2. Do you possess any accounting-related qualifications, such as a certified public accountant (CPA) license or an undergraduate or graduate degree in accounting?
3. What accounting software programs are you proficient in? (Alternatively, if your company has an existing software system, ask if the candidate is proficient in that program — or if he or she recommends a different one.)
4. Do you have experience filing income, payroll and sales tax returns? If so, which tax software have you used?
5. Can you provide additional services — for example, can you create budgets, forecasts, valuations or business plans — that might benefit our business long-term?
6. Do you have experience streamlining existing accounting and reporting processes?
7. How long after the close of each month does it take you to generate monthly financials, and can you provide interim reports, such as daily cash statements or weekly flash reports?
8. Are there any areas of accounting where you need more experience or training? Are there any aspects of tax and accounting that you’d rather avoid?
9. Have you ever dealt with any discrepancies or audit issues before? If so, how did you address them?
10. Do you have experience working with an outside CPA firm? If so, explain the types of services the firm provided.

By asking these questions, you’ll gain a detailed understanding of each candidate’s capabilities. The questions will likely open an extemporaneous dialog about the candidates’ qualifications and your expectations.

Remember, there’s more to finding the right fit than just accounting know-how. It’s also important to consider the soft skills you’d like the bookkeeper to possess, such as trustworthiness, approachability and communication. Ask yourself: Will this candidate mesh well with the other personalities on my management team? And will this candidate bring fresh ideas and advanced skills to the table? Taking the time to choose wisely could save headaches and money later.

We can be a valuable resource during the hiring process. In addition to helping brainstorm interview questions, we can refer qualified candidates with experience in your industry who are looking for a new position. Or we can temporarily handle your bookkeeping tasks during the hiring process. Contact us to discuss the possibilities.

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