A thorough auditing process requires effective communication between an auditor and an organization’s board, generally represented by the audit and finance committee (AFC).
There is a lot that goes into the planning and final stages of an audit. Keeping lines of communication between the auditor and the organization open throughout the year is paramount to a successful audit. The auditor needs to be able to get in touch with management to address issues and areas of concern as they arise. Similarly, management and the board need to stay in touch with the auditor to address matters of importance. This article summarizes the ideal steps required to conducting a successful audit.
Before field work commences
Prior to the commencement of an audit, an engagement letter issued by the auditor outlining the responsibilities of everyone involved needs to be signed by the board.
In the planning stages, the auditor should send a pre-audit letter to the AFC that addresses any high-risk areas. Along with the pre-audit letter, the AFC will receive a Systems Risk Questionnaire (SRQ) which is completed by management and then reviewed and signed off on by a member of the board, likely the AFC chair. The SRQ should be completed before starting the audit.
A meeting between the auditor and the AFC should take place to get the board’s input on the pre-audit letter. This meeting provides an opportunity for the board to express any concerns they may have and any specific work or areas they want the auditor to examine.
Management will receive a planning letter following this meeting that indicates what the auditor expects from management. In addition, the auditor would provide management with an Internal Control Questionnaire (ICQ). The ICQ confirms an organization’s procedures and is provided to management as updates may be required.
Management then needs to provide the auditors with an up-to-date and complete trial balance in order to effectively plan the field work component of the engagement.
After completion of the field work
After the file has been prepared and reviewed by the audit team, then draft forms of the financial statements, management letter and the post-audit letter will be presented to management for review. Once approved by management, the auditors would meet with the AFC to review the same documents and to discuss the issues identified and how they were resolved. This meeting should include an in-camera session.
The draft financial statements are then presented to the board for approval. They may be presented by either the auditor, chief financial officer, treasurer or the chair of the AFC. Assuming the draft statements are approved by the board, management then needs to sign and date the representation letter and then the board needs to sign and date the governance letter. We recommend an extract of the balance sheet stamped ‘signed office copy’ (SOC) be signed by the board at the meeting where the statements are approved.
The auditor needs to receive the signed representation letter, governance letter and SOC as soon as possible. The final financial statements cannot be delivered until these documents have been signed and received.
Jeffrey Miller, CPA, CA, LPA, CFE, TEP has been a partner, assurance & advisory services at Ginsberg Gluzman Fage & Levitz, LLP, Chartered Accountants in Ottawa since 1990. Jeff has volunteered on numerous not-for-profit boards and has worked on a variety of assurance engagements while specializing in audits of not-for-profit organizations. Contact him at jnm@ggfl.ca, visit the firm at www.GGFL.ca and follow on Twitter @GGFLCA for the latest accounting news and information.
