Recommendations for a Smooth Audit Engagement
For many nonprofits, the new year means year-end close preparations and annual audit engagements. To some, this can be an uncomfortable and stressful time of year, especially with so much to do and prepare for. But it doesn’t have to be! Below are some simple and easy opportunities to make your audit experience more efficient.
Schedule a Planning and Progress Meeting
Before the audit fieldwork even begins, it is important for both parties to meet and collaborate on the upcoming audit engagement. Increased communication and full transparency between the organization and auditors are critical for a smooth, efficient engagement.
Below is a rough agenda that can be used for this planning and progress meeting:
- An organizational and operational update for the current and subsequent year
- Challenges the organization is facing
- Fraud opportunities, risk assessment, and processes and controls
- Accounting and auditing standard updates
- Logistics including planning, engagement letters, sample selections and requests, fieldwork, deadlines, and presentations
Also, make the meeting inclusive by encouraging members of management and governance to attend. These parties can be in the same meeting or in separate meetings. However, it is important to hear from both parties as they tend to have different perspectives and responsibilities and are privy to information the other group may not know. Ultimately, this meeting should help the auditors start shaping their audit methodology, risk assessment, and engagement procedures. The more the auditors know up front, the greater chance for increased efficiencies and timeliness of audit requests.
Know the New Accounting Standards
Be proactive with any new transactions and accounting standards instead of waiting until audit fieldwork. If you are unsure of how to record something, reach out for recommendations. Auditors are not able to perform the work of management as they need to maintain independence, but they can provide recommendations.
Some of the new standards in need of adoption for calendar year-end nonprofits are the Financial Accounting Standards Board (FASB) Accounting Standard Update No. 2020-07, Not-For-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets and Accounting Standards Codification Topic 842: Leases. It is important to learn these standards and understand how they may impact your organization’s financial statements and audit engagement before the audit begins. Meet with your auditors to check that transactions are accurately recorded, and balances properly presented to mitigate audit adjustments and Internal Control Communication Letter recommendations (or commonly known as “management letter comments”). Below is some additional content on these new accounting standards:
Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets:
- Changes to Nonprofit Reporting of Gifts-In-Kind
- Changes to Nonprofit Reporting of Gifts-In-Kind – Implementation Examples
Leases:
- Nonprofit Lease Implementation Update and Common Practices Webinar
- Follow the Lease Standard Education Series for Nonprofits blog series:
Review Year End Audit Support Documents
When audit requests, sample populations, and account reconciliations are complete, a standard response I hear is, “Send it to the auditors, they need that document.” Simply put, do not just send documentation on to the auditors. As an auditor, yes, it is great to get audit requests in advance of expectations and deadlines. However, if the supporting documentation does not reconcile to account balances, prove population completeness, or have errors noted throughout, it ends up being counterproductive.
After completing audit requests, sample populations, and account reconciliations, take time to review the work performed. If possible, the review should be done by someone other than the preparer. A separate reviewer can help catch errors and irregularities and an electronic or physical signature and date should be completed to physically document and transparently show this review was completed. It is recommended that they review in detail against account balances and trial balance grouping reports to validate audit requests are accurate before passing them along.
Providing accurate and complete information can mitigate wasted time and effort and allow for quicker sample selections and additional audit requests.
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