What Is a PBC Audit and How to Prepare for One?

An audit is a systematic examination of an organization’s financial records, operations, and internal controls to determine if financial statements are presented fairly and accurately. A fundamental part of this process involves the client providing specific documents and information to the auditors, known as Prepared By Client (PBC). PBC refers to the materials an organization prepares and furnishes to its external auditors, which are essential for auditors to perform their work.

What PBC Means in Auditing

Prepared By Client (PBC) signifies the client’s responsibility to gather, organize, and submit specific financial records, data, and supporting documentation to external auditors. Auditors rely on PBC items to gain a comprehensive understanding of the financial statements and underlying transactions. PBC documents are essential for auditors to fulfill their professional obligations. Auditors use this information to verify the accuracy of financial statements, test the effectiveness of internal controls, and accumulate audit evidence. PBC items serve as the initial body of evidence, allowing auditors to then apply various testing methods to corroborate the data.

Common Information Categories Requested

Auditors typically request a wide array of information as Prepared By Client (PBC) items. Financial statements and general ledger data are foundational, including the trial balance, income statement, balance sheet, and statement of cash flows, which auditors use to understand the overall financial position and performance. Detailed general ledger activity reports, such as transaction listings, provide the granular data.

Cash and bank-related documents are consistently requested: bank statements, reconciliations, and confirmations from financial institutions. These documents verify cash balances and ensure all cash transactions are recorded.

Accounts receivable and accounts payable aging reports, along with supporting invoices and payment records, allow auditors to assess the recoverability of receivables and the completeness of liabilities.

Fixed asset schedules, detailing additions, disposals, and depreciation calculations, are provided to confirm the existence and valuation of property, plant, and equipment.

Payroll records, including summaries, tax forms like Form 941s, and supporting documentation for wages and benefits, enable auditors to test payroll expenses and related liabilities.

Legal and corporate documents are also crucial, such as articles of incorporation, bylaws, minutes from board of directors’ meetings, and significant contracts. These documents provide context on governance, significant decisions, and contractual obligations impacting the financial statements.

Preparing Your Organization for PBC Requests

Proactive preparation is essential for efficiently handling Prepared By Client (PBC) requests during an audit. Organizations should obtain the PBC list from auditors well in advance, ideally several months before the audit fieldwork begins. This early receipt allows ample time to understand requirements and plan internal resources.

Assigning clear internal responsibilities for each requested item ensures individuals or departments are accountable for gathering and reviewing documentation.

Establishing clear internal communication channels among staff responsible for PBC items helps streamline the collection process. Regular check-ins and progress tracking can prevent last-minute rushes and ensure all team members understand their roles and deadlines.

Organizations should maintain well-organized electronic and physical files throughout the year, rather than scrambling to compile them only when the audit approaches. This continuous organization involves systematically filing invoices, contracts, bank statements, and other financial records as they are generated.

Ensuring data accuracy and completeness is paramount, as auditors will test the reliability of the information provided. This involves regular reconciliation of accounts, review of financial reports for discrepancies, and verification that all transactions are appropriately supported.

Implementing robust internal controls and documenting them thoroughly, including narratives, flowcharts, or control matrixes, can significantly improve the quality of PBC submissions and facilitate the audit process. A well-prepared organization reduces the likelihood of auditor follow-up questions and promotes a smoother, more efficient audit experience.

Interacting with Auditors Regarding PBC

Effective interaction with auditors concerning Prepared By Client (PBC) items involves clear communication and timely responses. Once documents are prepared, they are typically submitted through secure channels, such as dedicated online portals, encrypted shared drives, or other secure electronic platforms provided by the audit firm. Timely submission of the requested information is paramount, as delays can extend the audit timeline and potentially increase audit fees.

Auditors will review the submitted PBC items and may have follow-up questions or requests for additional clarification or supporting details. It is important to respond to these queries promptly and thoroughly, providing comprehensive explanations or further documentation as needed.

Maintaining an open line of communication with the audit team, perhaps through a designated contact person or a centralized communication log, helps manage the flow of information.

This collaborative approach ensures that auditors have all the necessary evidence to complete their work, minimizing back-and-forth exchanges. Being responsive and organized in these interactions demonstrates a commitment to transparency and accuracy, which can foster a more efficient and positive audit experience for both the organization and the audit firm.