- Q: What is an audit?
A: An audit is a comprehensive examination of your financial statements, underlying accounting records, supporting documentation and issuance of the financial statements. The final document is in accordance with Generally Accepted Accounting Principles (GAAP), and includes an audit opinion on the completeness and accuracy of the financial statements taken as a whole.
- Q: What is my fiscal year?
A: A fiscal year is a twelve month reporting period most likely corresponding with your school’s tax year-end. The most common fiscal year-end is a calendar year, although there are instances where this can differ.
- Q: How long will my audit take?
A: An audit typically takes anywhere from 4 to 6 weeks depending on the condition and completeness of the accounting records, organization, and preparation by the school. A school should contact the potential auditor at least 3 to 4 months prior to the audit filing deadline. This is particularly important during the spring months when CPA firms are generally busier.
- Q: Can you explain the audit process?
The audit process is broken down into 3 steps.
- Select an auditor, such as Salmon Sims Thomas, who specializes in career schools and colleges. This is a critical step because schools’ finances are complex and have unique challenges. The firm needs to be familiar with regulations, accrediting requirements, policies and procedures, and most of all how to remain in compliance with the Department of Education.
- Get 2 -3 fee quotes to determine that the fees are competitive.
- Agree on terms: Once the terms have been agreed upon, you and the firm will sign an engagement letter, which is a written agreement to perform services in exchange for compensation. The auditor will provide you with a list of requested items. There will likely be additional documentation requests during the audit process. The auditor begins their examination after you gather and submit the requested information. Once the examination is complete, they provide you with a draft of the financial statements along with the required footnotes for your review and approval. Upon approval, you will be required to sign a management representation letter stating that you accept responsibility for the financial statements and that you made all of the necessary disclosures to your auditor.
- Q: How much does an audit cost and why is it so expensive?
A: There are many factors that affect the cost of an audit, including the completeness and organization of accounting records, complexity of financial transactions, and experience of the auditor. An audit is the highest level of engagement that a CPA performs. The audit report includes the auditor’s opinion on the completeness and accuracy of the financial statements, which is relied upon by third-party users of the financial statements.
- Q: Can any accountant do my audit?
A: No. An audit must be performed by a certified public accountant or CPA firm. If the school intends to apply to participate in Title IV funding with the U.S. Department of Education (ED), the audit must be performed under Generally Accepted Government Auditing Standards (GAGAS). The firm you select should be qualified to perform audits under these standards. Also, you should seek and select a firm that has experience with accrediting agency and ED audit and financial responsibility requirements. It is a good idea to contact references for each firm you consider.
- Q: What is GAAP?
A: GAAP requires that financial statements be presented on an accrual basis, which means that revenue and expenses are recognized or recorded when earned or incurred instead of when cash is received or disbursed. The accrual basis of accounting requires the recording of accounts receivable, prepaid expenses, accounts payable, accrued expenses, unearned revenue, and depreciation. Accounts receivable represent student charges that have not yet been collected. Accounts payable includes expenses incurred, but not yet paid. Prepaid expenses include expenses that have been paid but benefit a future period. An accrued expense is an expense that is recognized in the books before it is paid for. Prepaid revenue is a “pre-payment” for services, which the company is expected to provide to the student based on the terms in the student contract. Depreciation is a method of allocating the cost of fixed assets over their estimated useful life. A company will typically depreciate fixed assets for both tax and accounting purposes.
- Q: Why should I choose Salmon Sims Thomas as my auditor?
A: The complexity of school finances make it critical to choose a firm that specializes in career schools and colleges.
- SST has focused on the career school sector for over 25 years.
- 50% of our client base is comprised of career schools and colleges of all kinds.
- Our compliance team is solely committed to career schools. Each one of these professionals previously worked for career schools, so they know what it’s like to sit in your chair. They are dedicated to discerning and anticipating the needs of your school and recognizing potential issues before they impact you.
If you have questions, regarding the audit process or other financial matters, please contact us for a complimentary one-hour consultation: Eileen Keller, CPA firstname.lastname@example.org, 972.739.1265 or Dalton Cox, CPA email@example.com, 972.341.9543.