10 Tips for Your Upcoming Hospitality and Real Estate Audit

As another year-end approaches, the angst of the upcoming annual financial statement audit quickly builds. Here are ten best practices to help you prepare and make the real estate audit as efficient and anxiety-free as possible. 

#1: Scheduling and planning 

Be proactive and schedule planning calls with your auditors to discuss the upcoming audit. Have a timeline and list of required deliverables and clearly communicate them to the audit team in advance. That way, everyone has the same goals and can develop a plan to meet deadlines. Also, the appropriate individuals should be assigned responsibility for proper follow-up as needed. 

#2: Staying current with accounting standards 

Review all recently issued accounting standards updates (“ASU”) including ASU 2019-11 - Codification Improvements to Topic 326 – Credit Losses, ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures and ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The Financial Accounting Standards Board’s website is a great resource. Compile and research any required questions, and contact your audit team early in the process to discuss. 

#3: Addressing prior audit adjustments 

Review prior years’ audit adjustments and management letter comments to check if they have been addressed and, if they haven’t, prepare a plan to address previously raised issues.    

#4: Documenting yearly changes and valuations 

Review any major changes that have occurred during the year, and determine whether all related documentation is appropriately updated and accessible. Review any key areas for an audit, such as property valuations and impairment considerations. Year-end closing procedures should include proper preparation of reconciliation schedules, which may be contained in the auditor’s requests. Update any relevant memos, internal control process narratives and procedures, roll forwards, and accumulate proper documentation. 

Items to proactively provide to the auditors could include: 

• Updated cost segregation studies completed for any properties, 

• New reporting requirements or significant changes to the financial statements, 

• Discontinued operations, 

• Major impairments, and 

• Financing changes, including refinancing loans or new loans. 

#5: Organizing documentation and schedules 

Obtain a request list from the auditor so that all significant and time-consuming audit areas are addressed and reconciled as needed. While the auditor may not request all supporting documents and schedules, make the information used to complete the related schedules easily accessible and available upon the auditor’s request. 

#6: Preparing staff and clarifying audit tasks 

Prior to fieldwork, brief organization staff who will be working with the auditors by making them aware of key dates and timelines to complete the audit tasks.  

If any of the tasks requested by the audit team are unclear, ask the auditors to clarify and provide examples of schedules for the auditors to review so that all required information is available when needed. This will prevent additional requests toward the end of the audit. 

#7: Managing documentation for revenue recognition 

Identify and document revenue recognition considerations and internal control processes for all revenue streams, and compile supporting documentation for detailed transaction reports as required. Folio reports, lease agreements, and supporting documentation, such as cash receipts, may be time consuming to pull. As such, ask the auditors to select these well in advance of the fieldwork so that you and your employees can accommodate the requests. 

#8: Setting effective communication during audits 

Agree to the frequency of status meetings with the audit team, which could be daily or weekly, to discuss the progress of the audit and related requests to keep the audit is on schedule. Address any issues raised at the meetings within a reasonable timeframe. 

#9: Making staff available for smooth fieldwork 

Make yourself and your team available during the fieldwork. Auditors understand company employees have daily responsibilities. However, they must be available to answer questions to advance the audit smoothly and on schedule. Not all answers have to be provided on the spot, but your team should make every effort to provide a timely response to audit requests. Completing the request correctly and comprehensively can prevent follow-up questions and delays. 

#10: Concluding and addressing audit issues

Preparing and having open communication with both employees and the real estate audit team will help lead to a timely, accurate audit that complies with reporting requirements and lending covenants.