March 12, 2014
By Brian Collins, CPA
The auditor and a not-for-profit organization’s board of directors and management should be in communication before, during, and after fieldwork to make sure the audit progresses smoothly from beginning to end. In this three-part blog series I will discuss the information an auditor should be communicating to an organization’s board of directors and management. This first blog post will focus on the communication prior to the start of the audit and the second and final blog posts will concentrate on the communication at the end of the audit.
An audit covers the entire fiscal year of an organization, which is why the auditor should be in touch with the organization several times during the year in order to say up-to-date with the not-for-profit’s activities. Meetings held during the year can be done in person, by telephone, or by providing the auditor with the organization’s board minutes and internal financial statements for their review. An auditor should be there to help address any concerns or issues the not-for-profit may have throughout the year, not only during the audit.
Prior to the start of the not-for-profit’s year-end audit, a pre-audit meeting should be set up between the auditor and those charged with governance to discuss the audit and tax compliance services. Upon the conclusion of the pre-audit meeting, the initial audit communication an organization should receive from the auditor is an engagement letter, which establishes in writing the understanding of the terms of the audit engagement with the board of directors and management. The engagement letter principally addresses the scope of the audit engagement, the terms of compensation for the auditor, timing of services, and due dates of deliverables.
One of the main ways to have an effective and efficient audit is to properly focus on what is needed early in the planning stage. This can be accomplished through an arrangement or request letter. This letter is sent from the auditor to the organization before the fieldwork for the audit begins. The letter should be a detailed list of schedules and documents that need to be prepared and given to the auditor, including bank statements, trial balance, board minutes, and other information. The requested items should be available before the on-site audit fieldwork starts.
In addition to the letters discussed above, the auditor and the organization should have a meeting during the planning phase to develop a mutual understanding of expectations from both parties. At this meeting, the auditor should provide the board of directors and management with an overview of the overall audit strategy, including the timing of the audit. However, do not expect the auditor to discuss specific details of the audit procedures in order not to compromise the effectives of the audit. For example, discussing the nature and timing of detailed audit procedures with management may make the audit procedures too predictable. The communication of the overview and the overall audit strategy is typically done verbally to the board of directors and management prior to the start of the audit.
In the second installment of “What Should Your Auditor Be Communicating to You and Your Not-for-Profit Organization?” we will review The Auditor’s Communication With Those Charged With Governance (SAS 114).