What Is a PBC List in an Audit & Why Is It Important?

A financial audit is a systematic and independent examination of an organization’s financial statements and records. Its primary purpose is to provide assurance that these financial statements fairly present the financial position and performance of a company, aligning with established accounting principles. This assurance is important for external parties, such as investors, lenders, and regulators, who rely on accurate financial information for decision-making. Within this process, “Prepared by Client” (PBC) refers to the information and documentation that the audited entity provides to the auditors. PBC is a standard practice designed to streamline the audit engagement.

Understanding Prepared by Client (PBC)

PBC refers to the financial and operational documents, data, and explanations that the audited entity compiles and provides to the external auditors. Auditors develop a request list specifying the items needed from the client to conduct their examination.

Common items requested as PBC include:

• General ledger, which provides a complete record of all financial transactions.
• Trial balance, a summary of all ledger accounts.
• Bank reconciliations.
• Detailed invoices for revenues and expenses.
• Various contracts, such as loan agreements or significant vendor contracts.
• Payroll records, including employee earnings and tax withholdings, are often part of the PBC list.
• Supporting schedules for different accounts, such as detailed listings of fixed assets, accounts receivable, and accounts payable, are requested to verify balances.

The Purpose of PBC in an Audit

The PBC process enhances efficiency, accuracy, and cost-effectiveness in an audit. By receiving organized and pre-compiled information from the client, auditors can quickly understand the client’s financial data. This allows the audit team to focus on performing their testing procedures, analyzing data, and identifying potential issues, rather than spending time on data compilation.

PBC fosters collaboration between the client and the audit team, establishing clear expectations for the information required. This organized approach contributes to a smoother audit timeline, reducing the overall time auditors spend on the engagement. Ultimately, this reduces audit costs for the client.

Effective PBC Preparation

Effective PBC preparation involves several principles for the client. Organization is important, meaning documents should be clearly labeled and logically structured. Ensuring completeness is also important, as all requested items should be provided to avoid delays.

Accuracy in the provided information and timely submission according to the auditor’s request list are equally important. Reconciliations should be performed internally before submission, verifying the consistency of financial data. Maintaining open communication with the audit team allows for prompt clarification of any questions or missing information, further streamlining the process.