Preparing For An Estate Audit Checklist

An estate audit checklist is a document or tool created to facilitate an audit program by collecting evidence based on standards that specify requirements. It acts as an aid when assessing processes, procedures and controls within your organisation.

An effective estate audit will confirm that your brokerage operates according to state real estate regulations. To make sure you’re audit-ready, here are some best practices you should keep in mind.

1. Review Financial Statements
At times, auditors may recommend performing a review of your financial statements. A reviewed statement occurs when a CPA performs procedures to gain limited assurance that your statements have not been altered materially since being prepared.

Review is an analytical procedure and inquiry, but does not encompass an assessment of internal controls or fraud risk. For a successful review, you will usually require access to your trial balance, bank reconciliations and accrual schedule, accounts receivable/payables agings etc.

Make sure your audit documents are organized using an online document management system such as Paperless Pipeline so they can be found quickly on day one of an audit, which may reduce time required to complete an audit.

2. Review Tax Returns
Estate and gift tax returns are much more likely to be audited than income tax returns, thus heightening the importance of following best practices when it comes to preparation, documentation and record-keeping.

Once a return has been filed with the IRS service center, it is given a document locator number and processed for classification – this process may take six months before an IRS examiner contacts you with an audit letter.

When an auditor contacts you regarding valuation concerns, collaborate closely with your appraiser in preparing a written response that may help limit or even resolve it. Professional appraisers are experienced at handling audit responses and can also help prevent valuation issues in the future.

3. Review Financial Records
Estate plans are an invaluable way to ensure that both your property and finances will be well protected in the event of incapacity or death, so it is wise to review them on an annual basis in order to stay compliant with current legal requirements and keep up-to-date.

An annual real estate audit involves reviewing all of the required paperwork over an established time period – usually one financial year – such as transaction statements, property listings, trust account/fund details and broker license information.

Make sure to carefully read through all instructions from your state’s Department of Real Estate so you have all of the required paperwork ready before an auditor arrives. Furthermore, consider investing in an advanced transaction management system in order to avoid compliance breaches and stay on top of paperwork efficiently.

4. Review Accounting Procedures
The Department of Real Estate will notify you when an audit is due and provide a list of documents they’ll review – typically transaction documents, brokerage and office records, trust account records, property management agreements or funds details, license applications and your firm’s transaction log.

An auditor will analyze your accounting procedures, such as daily balance reconciliations between monthly bank statements, check register and detailed lists of client liabilities (trial balance or ledger). A firm should keep separate accounts for real estate sales to prevent inadvertent overdrawn balances in client trust accounts; additionally they should ensure all brokers and agents adhere to state laws and Consumer Affairs Victoria guidelines throughout each transaction – for this purpose a checklist may help them stay compliant.

5. Review Financial Information
Start collecting all key documentation as soon as you begin preparing for an audit, such as transaction documents, details about trust accounts at your real estate firm, property listings and any other financial data such as brokerage statements, 401(k)/IRA accounts and life insurance policies etc.

Based on the type of audit you are subject to, the auditor will inform you exactly which documents and forms need to be provided and when. As you collect them together, note any areas where compliance issues exist and record steps you’ll take to address them.

Implementing proper recording, compliance and record-keeping practices will help to ensure that your brokerage will pass an audit. Make sure to utilize an online transaction management tool with an audit history log for extra protection.