The Not-For-Profit Audit Process: Understanding Your Organization’s Roles in the ProcessJune 28, 2016
A fair assessment of your Organization’s financial health depends on the collective efforts of both your internal team as well as your external auditor.
The successful audit process is dependent of a great relationship between your not-for-profit Organization and your external auditor. Careful coordination, timely and frequent communication, and planning are the key ingredients to a seamless audit engagement. While the auditor’s responsibility rests on expressing an opinion on the financial statements, your Organization must provide the actual statements, disclosures and make sure that the auditor has all the necessary information to carry out the audit.
In the not-for-profit sector, there are different types of audits required. The type of audit is determined by the source and terms of your grants, contracts, contributions, and program services (i.e. Basic Audit, Program Specific, Uniform Grant Guidance (formerly referred to as A-133), Yellow Book, etc.) Make sure that you understand the type of audit required to meet your grant, contract, federal and/or state requirements, as the costs differs significantly from one to another.
Understanding your role in the audit process will make the process run more smoothly. Here are a few key responsibilities that apply to all audits regardless of the type of audit required.
The Not-For-Profit Organization’s Responsibilities
The not-for-profit must:
- Prepare the financial statements.
- Develop estimates and assumptions.
- Adopt accounting policies and procedures to ensure the financial statements are complete and accurate, and that transactions are properly documented, reviewed, and approved.
- Establish, maintain and monitor internal controls over financial statement reporting and compliance with laws and regulations.
- Conduct a risk assessment to prevent and detect fraud.
- Prepare the necessary support for external audit work.
If your Organization’s finance and accounting team is in need of resources consider enlisting the help of your board of directors (treasurer and audit committee) during the course of planning and performing the audit engagement. Members of your board of directors, and especially your audit committee, are likely experienced in accounting, and can help limit the number of adjustments needed during the audit by helping in the planning process and preparation of the financial statements.
The Auditor’s Responsibilities
The auditor’s job is to provide an opinion of your financial statements. The auditor forms this opinion by:
- Planning and performing an audit in line with required standards to ensure that the financial statements are free from material misstatement, whether from error or fraud.
- Considering your Organization’s internal controls in preparing audit procedures.
- Advising your not-for-profit on appropriate accounting principles.
- At your request, assists in the preparation of your financial statements.
- Maintaining independence, and not assisting in implementing any policies (though he/she can suggest improvements and/or additions to your current policies),
The added benefit of working with an audit firm that has significant experience with the not-for-profit sector is that they can offer the following:
- Make procedure recommendations that are in line with industry best practices.
- Recommend efficiency changes to reduce time and potentially labor costs.
- Provide training resources and guidance.
Your Organization spends a great deal of time preparing for the audit and both your Organization and the external auditor have critical roles that are essential to the accuracy of the audit. Being able to see a picture of your Organization’s financial status will make room for opportunity and growth and will secure your clean reputation to the public.
Questions? Contact any member of our Not-for-Profit Services Team.