As year-end approaches, mortgage lenders are balancing financial close, planning, and preparation for the new year. Audit season may be right around the corner, but there are still steps your team can take now to help make the process more efficient. 

A year-end review of high-risk accounting areas that require significant judgment, technical analysis, or supporting documentation can help surface questions before fieldwork gets underway. Clear documentation and early communication around significant transactions can also reduce back-and-forth and surprises once the audit begins. 

As you close out the year, here are six areas worth reviewing to help set the stage for a smoother audit season. 

6 Areas to Review for a Smoother Audit Season

1. Mergers & Acquisitions: Bring Your Auditor In Early

Merger and acquisition activity deserves particular attention in today’s environment. If your organization completed an acquisition this year, don’t save the accounting conversation for fieldwork. Start by evaluating whether the transaction represents a business combination or an asset acquisition, as that distinction affects how the transaction is recorded. Acquisitions can require complex accounting analyses, including fair value measurements and purchase price allocation. 

If you haven’t already, year-end is a good time to connect with your audit team to ensure they are aware of the transaction. Obtaining a qualified third-party valuation report can provide critical support for the fair value measurements and purchase price allocation, and can significantly streamline the audit process. Early auditor involvement allows sufficient time to review valuation methodologies, challenge assumptions, and resolve questions before reporting deadlines.  

2. Goodwill & Intangible Assets: Revisit Potential Impairment Indicators

Before closing the books, review goodwill and intangible assets for potential impairment triggering events, and document the factors supporting your conclusions. Examples may include sustained operating losses, performance below acquisition forecasts, branch closures, or other significant changes in the business.  

The required analysis depends on the asset and the accounting policies your organization has elected. Goodwill generally requires annual impairment testing and additional testing when triggering events occur. Eligible private companies that elect the goodwill amortization alternative test goodwill for impairment when a triggering event occurs. Indefinite-lived intangible assets generally require annual impairment testing, while finite-lived intangible assets are evaluated under a different impairment model.  

Completing the analysis and documenting the results at year-end can put your team in a better position to respond when questions arise during the audit. 

3. Liquidity and Ginnie Mae Delinquencies: Look Beyond Today’s Numbers

For mortgage lenders, Ginnie Mae (GNMA) related liquidity exposures continue to be significant audit and regulatory focus areas. Leaders should take a close look at and continually monitor GNMA delinquency and buyout activity trends as a part of your year-end review. Comparing delinquency levels to prior periods can provide valuable insight into potential future liquidity demands.  

As delinquency rates increase, issuers may face additional servicing advance requirements and funding needs for planned delinquent loan buyouts. Distinguish required advances from optional buyout decisions and any separate mandatory repurchase obligations when assessing the potential cash flow impact.  

Prepare a liquidity forecast that includes delinquency trends, expected advances, planned buyouts, anticipated reimbursement timing, and available financing. Consider how liquidity would change if delinquencies increased or reimbursements took longer than expected. Regular monitoring, documented analyses, and proactive forecasting can help management identify emerging risks and prepare for potential impacts.  

4. CECL & Loan Loss Reserves: Keep Different Obligations Separate

Another area that frequently creates confusion is the distinction between allowances for expected credit losses under CECL and reserves for repurchase or indemnification obligations. These address different exposures and require separate accounting analyses. CECL addresses expected credit losses on loans and other financial assets subject to ASC 326, while repurchase and indemnification reserves address contractual obligations arising from loans that have already been sold. 

For example, a loan held for investment at amortized cost generally requires a CECL evaluation, while potential losses arising from representation and warranties on a sold loan require a separate evaluation under the applicable guidance. 

Mortgage lenders should maintain separate policies, calculations, and supporting documentation for each reserve type to ensure compliance with the applicable accounting guidance and to facilitate a more efficient audit review. Ultimately, organizations that focus on documentation, communication, and proactive risk assessment throughout the year are best positioned to achieve a successful and efficient audit outcome. 

Before audit season begins, make sure your policies, calculations, and supporting documentation clearly distinguish each reserve type. That clarity can help make the audit review more efficient. 

5. Lease Accounting: Check Changes Made During the Year

Lease accounting under ASC 842 continues to generate audit findings, particularly when lease modifications occur. Auditors frequently identify situations where management properly amended a lease agreement but failed to evaluate the accounting implications of the modification. Retaining lease amendments, documenting management’s analysis, and reassessing discount rates when required can help prevent material adjustments and audit delays. 

Think about your organization’s lease activity this year. Were agreements extended? Did you add leased space, change payment terms, or terminate a lease early? Under ASC 842, these changes may require accounting for a separate lease, remeasuring an existing lease, or recording a partial or full termination. An updated discount rate may also be required, depending on the circumstances.  

Before year-end closes, review lease changes made during the year, retain the supporting amendments, and document your team’s accounting analysis. A quick review now can help identify questions before they surface during audit fieldwork. 

6. Accrued Paid Time Off (PTO): Review What You’ve Accumulated

PTO accruals are another area worth revisiting before year-end, particularly because the accounting obligation does not depend solely on state law. This is a common area of audit focus as companies do not always fully capture obligations that have accumulated through employee service.  

Under ASC 710, companies must record a liability for future compensated absences if the obligation arises from past service, employee rights have vested or accumulated, payment is probable, and the amount can be reasonably estimated. This obligation remains even if state law does not require payout upon termination. 

Review your PTO policies and accrued balances as part of your year-end close to make sure the appropriate obligations have been captured and documented before audit work begins. 

Start the New Year Ready for Audit Season

With year-end already here, the goal isn’t to overhaul your audit preparation process. It’s to use the time remaining to identify areas that may warrant additional attention, make sure key analyses are documented, and bring important questions to your audit team before fieldwork gets underway. 

A little preparation at year-end can help reduce surprises, improve communication, and keep the audit moving more efficiently in the new year. 

Questions as you prepare? Connect with your Richey May mortgage banking experts to discuss year-end considerations and areas that may benefit from additional attention before fieldwork begins.