What Should Your Auditor Be Communicating to You and Your Not-for-Profit Organization? Part 2 of 3
At the end of your not-for-profit organization’s annual audit, once the financial statements and the auditor’s report have been prepared, signed, and delivered to those charged with governance, your auditor should reach out to those charged with governance to communicate specific items related to the audit of the financial statements. The term ‘those charged with governance’ refers to the person(s) with responsibility for overseeing the strategic direction of the organization and obligations related to the accountability of the organization. This includes overseeing the financial reporting process. For many not-for-profit organizations, the term those charged with governance refers to the board of directors or the audit committee.
Statements on Auditing Standards establish standards and provide guidance on the auditor’s communication with those charged with governance in relation to an audit of financial statements. The Auditor’s Communication With Those Charged With Governance (SAS 114) states that the principal purposes of communication with those charged with governance are to:
- Communicate clearly with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, and an overview of the scope and timing of the audit.
- Provide those charged with governance with timely observations arising from the audit that are relevant to their responsibilities in overseeing the financial reporting process.
The following is a list of topics that should be communicated to those charged with governance:
- The auditor's responsibilities under generally accepted auditing standards
- An overview of the planned scope and timing of the audit
- Significant findings from the audit
- Organization’s Significant Accounting Practices (policies, estimates, disclosures)
- Difficulties Encountered in Performing the Audit
- Corrected Adjustments and Uncorrected Adjustments
- Disagreements with Management
- Fraud and Noncompliance with Laws and Regulations
- Representations Requested from Management
- Management’s Consultation with Other Accountants
- Other Significant Findings or Issues
The auditor should communicate with those charged with governance orally or in writing on a timely basis to enable those charged with governance to take appropriate action for any significant findings. When matters are communicated orally, by conversation or presentation, the organization should document them. Documentation of oral communication may include a copy of minutes prepared by the organization. When matters have been communicated in writing, the organization should retain a copy of the communication.
In the third and final installment of “What Should Your Auditor Be Communicating to You and Your Not-for-Profit Organization?” we will review the Communication of Internal Control Related Matters Identified in an Audit (SAS 115).