The Role Of The Audit

Do you rely on your auditor to pick up every little error? You could be in for some problems. Many committees assume that once an audit has been completed and the auditor’s report indicates that everything appears to be in order, there is nothing to worry about. What if you were wrong?

The role of the audit is to provide an independent review of the financial reports of the organisation. This usually includes the income statement, balance sheet, statement of changes in equity, cash flow statement, notes relating to the accounting policies and other additional information to help explain the figures. From all this information the auditor’s form an opinion as to whether the financial reports reflect the financial position of the organisation at the date the report was prepared.

An audit does not check every figure and it doesn’t check every transaction. Only samples of the transactions are reviewed. An audit does not review all of the internal and risk management controls. So while an audit may pick up on fraudulent activity it is not the responsibility of the auditor to hunt for it.

The visit of the auditor can be very valuable to your organisation if you use it strategically. The committee of management may ask to auditors to have a more detailed look into certain aspects of the operations of the organisation. This may occur as part of the end of year audit or during the year as part of the half year or interim audit. For example, you might ask the auditors have a more detailed look into the payroll and salary packaging arrangement to check that the correct pay rates are being paid and that you are in compliance with the FBT and PAYG taxation laws. The following year you may focus on the management of grants, unspent funds and compliance with funding agreements. The intention is that over several years the key parts of the operations are examined in more detail.

Remember, it is the responsibility of all the members of the committee of management to ensure financial viability of the organisation so at the completion of the audit you should ask the auditor attend your meeting to discuss the audit and its findings.

Prepare For The End Of The Financial Year

With the end of financial year already here there are a number of issues you need to focus on in relation to your accounts, the audit, and preparation for the new financial year. Listed below are some important issues you may want to address as part of the end of year process. As Treasurer you may not do all of these but it is important you track that these are completed as part of the end of year process. They will form part of the Board reporting process.

• Obtain from your auditors a schedule of requirements that they need to complete the audit. By knowing exactly what the auditors require for their audit you can save time and cut costs. If you are not prepared and you delay the auditors, they may charge additional fees. If you lodge certain documents late with ASIC you can be fined. It’s important to know that everything that should be done is actually being done.

• Ensure reconciliations are completed for all accounts and that they match balances in the Annual Reports. Also, with any balances in the accounts, understand why they exist and what they are for. For example, you may reconcile the Accounts Receivable and have a $9,000 balance which represents amounts still owed to you. It is critical you have a list of the debtors that makes up this balance as well as how long the debts have been outstanding for. If you have a debtor greater than 6 months then they may be a bad debtor and you are not likely to recover the amount. If you can’t or don’t do this then you need to tighten up your controls.

• Ensure your GST has been calculated up to 30 June and that any end of year adjustments have been included.

• If Group Certificates need to be prepared, make sure the payroll accounts have been reconciled. Also, as Group Certificates require reportable fringe benefits to be included make sure salary packaging details have been reconciled and included correctly.

• Identify and prepare end of year adjusting entries and make sure they are reversed in the new year. Failure to manage these correctly can result in an over or under statement of accounts and can have a significant impact if incorrectly left in the accounts.

• Prepare relevant reports and grant acquittals for any organisations you may have received funds or grants from. Also, review whether new or recurring funding submissions have been prepared and submitted.

• Prepare for the Annual General Meeting as often you are required to advertise the date well in advance of the meeting and also be clear about the procedures for the appointed or election of Board members.

• Always double check that the amounts in the Financial Reports are correct by checking the additions as well as amounts referred to in the notes and ensure they add up to the totals in the reports. Mistakes can happen and as you are signing off on the reports you must be sure they are accurate and correct. Do not just assume the auditors have got it right as they make mistakes too.

• Often at the end of the audit the auditors will prepare an Audit Closing Report that covers issues associated with their audit. Ideally, try and get the auditor to attend a Board meeting to discuss the report as well as cover any other issues the Board may discuss.

While there are many other issues you may need to address it is important you plan out what needs to be done and give yourself realistic timelines to get everything completed.