Preparing for your first audit: a practical checklist
Short answer: To prepare for a first audit, close the books properly (reconcile every bank, credit card and balance sheet account), gather the documents auditors request (trial balance, bank statements, contracts, grant and loan agreements, payroll records, fixed asset and debt schedules, minutes), document your key controls, and engage your auditor early so opening balances can be addressed. Organized records are the biggest driver of a faster, cheaper audit.
Key takeaways
- Engage your auditor 3 to 6 months before year-end for a first audit.
- Every balance sheet account should be reconciled to a supporting schedule before fieldwork.
- First audits need extra work on opening balances, so keep prior-year records accessible.
- Auditors send a 'PBC' (prepared by client) list; return it complete and on time.
- Expect proposed adjusting entries in a first audit; review and approve them, don't just accept them.
- Clean books and prompt answers reduce hours, and hours drive the fee.
What is the timeline for a first audit?
| When | What happens |
|---|---|
| 3–6 months before year-end | Select an auditor, sign the engagement letter, agree on the timeline |
| Before year-end | Auditor plans the engagement, learns your processes, may do interim work |
| Year-end to ~6 weeks after | You close the books and assemble the PBC list |
| Fieldwork (1–3 weeks) | Testing, confirmations, questions and follow-up |
| 2–6 weeks after fieldwork | Draft statements, management review, representation letter, final report |
Work backward from your deadline: a loan covenant, a state filing date or the nine-month Single Audit deadline.
How do you engage an auditor?
- Confirm the requirement. Make sure an audit (not a review) is actually needed. See audit vs review vs compilation.
- Check independence. The audit firm generally can't be the firm that keeps your books or makes management decisions, unless specific safeguards are met.
- Check experience and licensing. Look for experience with your type of organization and confirm the firm is permitted to practice in your state and enrolled in peer review.
- Get a fixed fee in writing, along with what it assumes about the condition of your records.
Year-end close steps before fieldwork
- Reconcile all cash accounts (operating, payroll, savings, reserves, investments) to bank statements, with every reconciling item explained.
- Reconcile credit cards and make sure every charge has a receipt and a business purpose.
- Record accruals: unpaid invoices for goods and services received before year-end, accrued payroll and vacation, and interest.
- Review receivables: age them, write off what isn't collectible, and record an allowance where needed.
- Record prepaid expenses such as insurance, software and deposits.
- Update fixed assets: additions, disposals and depreciation.
- Reconcile debt to lender statements, and split current and long-term portions.
- For nonprofits: roll forward donor-restricted net assets and record releases from restriction.
- For associations: reconcile reserve accounts and interfund balances.
The first-audit document checklist
Financial records
- Year-end trial balance and full general ledger, exported to Excel
- Bank, investment and credit card statements for all 12 months, plus the month after year-end
- Bank reconciliations for every month (at least year-end)
- Supporting schedules for every balance sheet line: receivables, prepaids, fixed assets, payables, accruals, deferred revenue and debt
- Prior-year financial statements and tax return
Revenue and contracts
- Significant customer contracts, grant agreements and award letters
- Pledge and donor-restriction schedules (nonprofits)
- Assessment rolls and delinquency reports (associations)
- Leases, loan agreements and any covenant compliance calculations
Payroll
- Payroll registers and quarterly Forms 941, state returns and W-2/W-3
- Employee list with pay rates, and documentation of approved raises
- Benefit plan documents and retirement contribution reports
Governance
- Board and committee minutes for the year and through the audit date
- Articles, bylaws, and IRS determination letter (nonprofits)
- Conflict of interest and related party information
- Insurance policies, and a list of legal matters and attorneys
Why opening balances matter in a first audit
The auditor has to obtain comfort that the balances you started the year with are materially right, because they affect this year's results. If the prior year was audited by another firm, the new auditor will often review that firm's workpapers. If it wasn't audited, expect extra procedures on prior-year cash, receivables, fixed assets, net assets or equity, and debt. Keep prior-year bank statements, reconciliations and schedules handy.
What auditors want to know about internal controls
Auditors will walk through how key transactions flow: revenue and cash receipts, purchasing and disbursements, payroll, and the financial close. Be ready to explain:
- Who approves invoices, signs checks and releases electronic payments
- Who reconciles bank accounts, and whether someone reviews the reconciliations
- How access to the accounting system is controlled
- How journal entries are reviewed and approved
Small organizations can't always separate duties fully. That's normal. Board-level review, such as a treasurer reviewing bank statements and reconciliations each month, is a strong compensating control.
What happens during fieldwork?
- Name one point person to receive requests and track open items.
- Answer within a day or two. Delays stretch the timeline and add hours.
- Expect sample requests: invoices, contracts and approvals for selected transactions.
- Expect confirmations to banks, lenders and possibly customers, donors or attorneys. Sign the authorizations quickly.
After the audit
Management reviews the draft statements and notes and approves any proposed adjusting entries. You'll sign a representation letter. The auditor issues the report and communicates any significant deficiencies or material weaknesses to the board. Use those findings to fix processes before next year. Second-year audits are almost always faster.
Mistakes that make audits slower and more expensive
- Starting the year-end close after the auditor arrives
- Unreconciled accounts, or reconciliations with unexplained differences
- Missing support for large or unusual transactions
- Changing bookkeepers or software right before year-end without documentation
- Not tracking donor restrictions or grant spending during the year
If your books need work first, our bookkeeping and cleanup team can get you audit-ready. A different firm will then perform the audit, to protect independence.
Frequently asked questions
How long does a first audit take?
For a small or mid-size organization with organized books, fieldwork usually takes one to three weeks, and the full process from planning to final report typically takes six to ten weeks.
What is a PBC list?
A 'prepared by client' list is the auditor's list of documents and schedules you need to provide, such as the trial balance, reconciliations, contracts and payroll records.
Why is a first audit more expensive?
The auditor has to understand your organization for the first time and obtain comfort over opening balances, which adds procedures that aren't repeated in later years.
Can our bookkeeper's firm audit us?
Usually not. Auditor independence rules generally prevent a firm from auditing records it maintains or decisions it makes, unless strict safeguards are met.
What are adjusting entries in an audit?
They are corrections the auditor proposes to the books. Management reviews and approves them, and they are recorded so the financial statements are materially correct.
GreyWood CPA PLLC is a licensed CPA firm headquartered in Richmond, Virginia (Virginia Board of Accountancy firm license #134961), serving nonprofits, community associations and businesses nationwide. This article is general information as of March 10, 2026, not legal or tax advice for a specific organization. Rules change, so confirm current requirements before acting.