Tips to Make Your Not-for-Profit Clients’ Next Audit a Success
Times have changed significantly from when I started performing audits over 20 years ago. U.S. Generally Accepted Auditing Standards have evolved, and now emphasize the auditee’s responsibility for financial reporting. Today, not-for-profits are in charge of identifying and recording the adjustments necessary to close their books, gathering the financial statements and designing control systems needed to prevent, detect and correct errors that may occur. As a result, the cost and efficiency of the audit is directly impacted by how well your clients prepare. Here are some best practice tips to help them prepare:
Create a detailed timeline. It is a good idea to meet with clients at least three months prior to the start of the audit to identify key dates and milestones, such as when the client-prepared information will be completed, when the audit will start, when draft financial statements will be provided to management, and when meetings with the audit or finance committee and board of directors will take place. If your firm is also providing tax services, the timeline should include the expected completion date of the client-prepared tax schedules, as well as the delivery date for the IRS Form 990. All parties should agree to, and receive a copy of the schedule containing these items. This will define each party’s responsibility in meeting the final deadline.
Involve those charged with governance in the planning process. US Generally Accepted Auditing Standards clearly state that it is the responsibility of management, and those charged with governance, to develop a system of internal control capable of detecting and mitigating fraud risk. As a result, the not-for-profit’s audit committee (or a similarly functioning governance team) should be involved in audit planning. Take the opportunity to advise the audit committee about best practices. Inquire about the process in place to train new audit committee members and to educate them about risks, internal controls and other risk response strategies. Also, take the time to discuss the organization’s Audit Committee Charter and compliance with its provisions. An engaged audit committee will lead to a lower-risk audit—and, hopefully, a more efficient one.
Encourage clients to honor their commitment. I recommend asking for client-prepared schedules at least one week prior to the start of field work. This ensures that the not-for-profit is ready for its audit, and allows the auditor to perform a preliminary review of the prepared schedules. Once you’ve received your client’s information, you can verify that schedules have been prepared in the format needed, that they tie to the trial balance and that the trial balance rolls forward from the prior year. You can also identify potential issues that will need to be addressed during the audit.
Explain that the audit is a team effort. Once the audit has started, you will still need assistance from your clients. They will be able to supply any additional documentation you need, and answer any questions you might have. Your client should plan to have its accounting staff available to answer questions, pull additional documentation needed and assist the auditors in keeping the audit on schedule. If you and your clients work together to plan the audit and adhere to the established timeline, the result will be a more efficient and cost effective audit for your firm and your client.
The first time I tried this with my client, I was nervous about how it would be received. After all, the process places a higher expectation on the client. To my surprise, 95% of the clients really liked it, because our expectations regarding field work timing and performance were much more clearly defined. Additionally, the client was more clearly able to visualize the process from start to finish. Now, clients ask me when we can start working on the timeline. The result: increased efficiencies and increased client satisfaction. It’s a win/win.
The AICPA Not-for-Profit Section offers auditing and accounting resources, including illustrative financial statements, account work papers in Excel and a checklist of required auditor communications. As an added benefit, Section members can download a complimentary Audit Committee Toolkit, which includes a sample audit committee charter and other resources for not-for-profit audit committee members. To learn more, visit the AICPA’s Not-for-Profit Section’s Resource Library.
Jeff Barbacci, CPA, Shareholder, Assurance Services at Thomas Howell Ferguson P.A. Jeff has over 20 years of experience specializing in government and not-for-profit consulting and auditing. Jeff is a member of the AICPA Governing Council and is the immediate Past Chairman of the Board of Governors for the Florida Institute of CPAs.
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