lots of information is lurking there.
by ed mendlowitz
77 ways to wow! the checklist handbook for small-business advisory services.
one time i was asked to audit a hotel in florida that was going to be foreclosed on by the mortgagor and for which i was paid in advance. the audit was planned and scheduled, and it looked like we had everything under control from our end as much as we could.
more: organization minutes too often overlooked | five cash reports you can’t live without | when an audit is a great thing | which kpis do you need?
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i received a call on a friday morning that the foreclosure was going to take place sooner than expected, and i had to either do my work monday through wednesday or return the retainer because the foreclosure was going to take place on thursday. i took a sunday evening flight with a senior accountant. when i walked into the hotel, i got really nervous. this was not a small motel but a big hilton hotel – not what i anticipated.
the next morning, we met the controller and accounting staff. i told my assistant that we would start with the balance sheet. i would do the cash and he would do everything else. he was elated that he wasn’t “stuck” with the cash and that he would work on the “important” accounts.
i have two simple rules in starting a job. start at the top. cash is the first item at the top. the top relieves any decisions about where to start and reduces anxiety about choosing. sometimes it might make sense to start with the most important account, but occasionally in an audit what looks like the easy pickings isn’t and what looks difficult might not be important. start at the top – eventually you’ll cover everything. a proper audit or work program will eliminate unimportant efforts.
the second rule to consider is to start with cash. usually that is the top item in a chart of accounts. the cash accounts show the ins and outs of cash. isn’t that what business is all about? if the cash is right, then the confidence level for the audit rises.
i always preferred to do the cash. there is a lot you can learn about a business and its operations. knowledge is power – really!
the problem with many accounting firms’ procedures is that they assign the cash to the lowest-level staff person, immediately signaling that it is not important, that it is a chore and is something to whiz through.
well, none of that is true – it is the most or second most important part of an audit. depending upon the business, something else might be more important, but that needs some thinking about – while cash is always at or near the top.
we worked late that first night, had a quick dinner and went to sleep. the controller joined us at breakfast in the morning and we started talking about the hotel operations, the room rates, the vacancy percentages, seasonality of business, the corporate customers and major suppliers.
afterward, when we started work, my assistant asked me when i had time to find out all that information. i replied that was the byproduct of auditing the cash accounts. i then explained the importance of working on the cash. it is sort of like “youth is wasted on the young.”
when starting an audit, or investigation, start with the most important – start with the cash.