What Is a PBC List in an Audit and What Is Included?
Understand what a PBC list is in an audit, why it's crucial for efficient information exchange, and how it streamlines the audit process.
A Prepared by Client (PBC) list is a key tool in a financial audit. It serves as a request from the auditor to the client, outlining documents and information. It streamlines the audit. It defines information needs, establishing expectations and responsibilities for both parties. This enhances communication and reduces delays from missing or unclear information.
Why PBC Lists Are Used
PBC lists are used in audits to promote efficiency for both the auditing firm and the client. They provide a clear roadmap of the documents and data the audit team needs, reducing auditor time on follow-ups and clarifications. This manages expectations for information and timelines. Clients are aware of their responsibilities in advance, allowing systematic material gathering.
Implementing a PBC list establishes a formal record of all requested and received items, valuable for tracking progress and accountability throughout the audit. This structured process makes the audit more cost-effective for the client, as less auditor time on information gathering translates to lower audit fees. By having documents prepared beforehand, both parties can allocate their resources effectively, leading to a more efficient audit.
Information Requested
The content of a PBC list is tailored to the specific audit and client, encompassing financial and operational documents. Auditors request core financial statements (balance sheet, income statement, cash flow statement), along with the general ledger and trial balance. These documents provide an overview of the entity’s financial position and performance. Supporting schedules are requested, including accounts receivable and accounts payable aging reports, which help auditors test revenue and expense recognition and assess the collectibility of receivables.
Other requests include:
Bank statements and reconciliations for all cash accounts, used for verifying cash balances and identifying unusual transactions.
Fixed asset schedules, detailing additions, disposals, and depreciation, needed to test the existence and valuation of property, plant, and equipment.
Copies of loan agreements, lease contracts, and other legal documents to understand the entity’s obligations and their impact on financial reporting.
Meeting minutes from board of directors and committee meetings for understanding governance decisions and events.
Internal control policies and procedures, along with prior tax returns, providing insights into the entity’s operational framework and compliance history.
Client’s Role in Providing Information
The client’s participation is key to the success of an audit, particularly in responding to the PBC list. Clients organize and compile all requested documents and data. They ensure the accuracy and completeness of every item provided, as incomplete or incorrect submissions can delay the audit. Auditors issue the PBC list approximately 30 to 60 days before the planned start of fieldwork to allow preparation time.
Adhering to established deadlines for document submission is a client responsibility. If challenges or delays arise in gathering specific items, communicating these issues to the audit team. Documents should be clearly labeled and transmitted through secure channels, such as encrypted client portals or secure file transfer protocols. This practice protects financial information and helps the audit team process received materials, contributing to audit efficiency.
How Auditors Utilize the Information
Once the client provides the requested information via the PBC list, auditors begin review, analysis, and testing. They utilize the documents to trace transactions, perform reconciliations, and verify account balances against supporting evidence. For instance, bank statements and reconciliations confirm cash balances, while accounts receivable aging reports help assess the valuation of receivables. This initial review enables auditors to understand the client’s financial operations and internal controls.
The information from the PBC list allows auditors to identify and focus on higher-risk areas requiring on-site investigation. Completing preliminary work remotely increases fieldwork efficiency. The gathered information forms the basis for performing various audit tests, including substantive testing and controls testing. This review and testing is important for auditors to form an opinion on the fairness of financial statements.