PKF Francis Aickin Limited, Far North, New Zealand
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20 Jul 2017
There is a legal requirement for large entities to have their financial statements audited by an independent auditor, normally a Chartered Accountant. Smaller entities may also require an audit. For example, all charities with annual expenditure of more than $1 million or those obliged to audit due to their constitution.
The main purpose of an audit is to confirm to the members, beneficiaries, funders, or other interested parties that the financial statements of the organisation fairly reflect the true financial position.
There are set auditing rules and guidelines which are now universally adopted. This means that the audit of a small charity in the Far North, must be audited using the similar audit regulations as a large company in Auckland.
The key question is, if you are required to have an audit or a review, how do you ensure you get the best use out of it.
Most auditors will work for many organisations. As such we have the luxury of seeing how many different businesses operate. We get to see a variety of systems and controls operated by businesses and therefore know which ones work best.
A good audit will focus on the risk areas of the organisation, ascertain where there may be a problem either with the financial statements, or with the systems that the organisation operate.
If the governing body or members of an organisation have any concerns with an area of the financials, or are unhappy with some of the systems, they should discuss these with the auditor.
The auditor should be able to focus on these areas, provide the comfort the trustees require and more importantly suggest ways of improving the systems.
If there is no legal requirement for an audit, a review engagement is another option. This type of review is still a form of independent assurance but is not as detailed as an audit.
The review engagement is a possibly more cost effective option as it is providing a lower level of assurance. The review provides a conclusion as to whether anything has come to reviewer’s attention that the financial statements may be materially misstated.
After each audit or review, a letter will be sent to the trustees with suggestions for improvement. Sometimes these letters are ignored as the points are seen as nit-picking. In some cases, this may be true, however a good audit letter is a valuable guide.
A good audit letter will include recommendations, which give some constructive points as to how the organisation can improve its systems or procedures. It will include items of best practice.
When drafting these letters, we focus on the important issues first, which we believe will be beneficial to the organisation. We still include those points which are not critical but should nevertheless be adopted. A good example of this is a recommendation that all meeting minutes are approved and signed.
Trusts and community organsations play a major part in our Far North region. It is difficult enough for these organisations to find willing trustees, without them having to struggle with understanding complexities of a financial audit.
It may be a good time to review your constitution and consider whether a review engagement would be more suited to your organisation.
If the board/trustees agree that a lower level of assurance is acceptable for their organisation then they can make an amendment to the constitution to allow for a review engagement rather than an audit.
For more information, please contact me or visit our website www.pkffa.co.nz
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