When it comes time for the annual audit, most people want to get it over with as soon as possible. The entire audit process can be made easier and perhaps even enjoyable for all involved with an understanding of the broad elements that comprise an audit. They include the following:
In this issue we will explore the first two areas of the audit process.
An Audit's Purpose
An audit's focus is on the financial statements; that's its primary purpose. The auditor will audit and examine the information that is on the financial statements through a variety of tests and procedures, and ultimately issue an opinion on that information so that others outside the organization may rely upon the financial statement information.
The auditor does consider internal controls, but only to the extent that is necessary for determining audit procedures and not to provide any assurance or opinion on the effectiveness of the controls. The time involved in testing the controls sufficiently for issuing an opinion on internal controls would dramatically increase the cost of the audit.
Another benefit of the audit process is that it motivates management and the accounting department to follow the established processes throughout the entire year. Just knowing that an audit is a regularly scheduled event goes a long way in inducing personnel to do the right thing.
Finally, the audited financial statements satisfy donor, grantor, government, or bank requirements.
Management's Responsibilities
Management has certain responsibilities in operating an effective business and includes the following:
Auditor Responsibilities
Audit Committee Responsibilities
The audit committee (or in some cases, the Board and/or Treasurer, if there is no designated audit committee) typically has responsibilities which most often include some or all of the following:
Assisting the Board in its oversight of
The AICPA provides some excellent information on the audit process and managing the audit, and offers an Audit Committee Toolkit for free. The kit provides many useful tools and forms for establishing and managing the audit committee. It was developed specifically for not-for-profit organizations and is provided free of charge (section by section) here.
In our next issue of Legacy Advisor, Not-For-Profit Organizations, we will explore various audit planning tips for getting the most out of your audit and ways to facilitate audit communications.
By Paul M. Doetsch, CPA, CMA, Partner, pdoetsch@legacycpas.com