Why have an audit?
Usually the answer to this question is that it is a legal requirement, but let’s be more positive. The auditor’s role is to form an opinion on the annual accounts of the charity and append a report, which normally states that those accounts give a true and fair view of the state of the charity’s affairs as at the accounting date and of its incoming resources and application of resources for the year then ended, have been properly prepared in accordance with generally accepted accounting practice and in accordance with the relevant legislation.
It is hard to understate the value of such a statement of assurance. It gives confidence to the Trustees that the charity is properly managed, and it generates confidence among all the stakeholders: the management team, the employees, the volunteers, the beneficiaries, the collaborators, the donors and the public generally.
An invaluable resource
Your auditor will probably be a specialist in the field of Charities and Not-for Profit entities. In addition to their training and continuing professional development as a Chartered Accountant, they will have years of experience of the affairs of many such organisations, and not just the accounting. In a way, the report on the year end accounts is the end of an annual cycle, during which you might have asked your auditor for advice on internal governance, management and organisation, financial risks and controls, Companies Act or Charities Act compliance, or taxation.
Most charity auditors will prepare periodic updates on regulatory changes, current issues, important statistics and matters of interest. Click here to subscribe to our free sector updates. Regular communication is recommended and your auditor’s advice should be sought especially when you are considering a new venture or project. In many cases it is regarded as good practice to invite the auditor to some of the trustees’ meetings, and not just the one where the annual accounts are presented.
A smooth process
The pandemic has made the audit function more challenging, but we have all learned a great deal over the last 12 months. The problems are well-known: restrictions on face-to-face meetings, staff furloughed or working from home, the logistics of passing on documents without spreading disease. To cope with this careful planning is required. Some time before the year end an audit strategy will be discussed. In happier times this may have been done over a cup of coffee at your office; now it is more likely to involve a video conference. In any event the discussion needs to cover any changes since the last audit, new risks, this year’s deadlines and the timetable, and respective responsibilities.
Two or three weeks prior to the audit you should obtain a checklist of documents that the auditor will need to plan their work. The auditor will probably have a secure document exchange facility and most of your records will already be digitised so it should not take too much time to provide these. The auditor will then do the planning and request the evidence he or she needs to conduct the examination. If it is unsafe or not permitted for them to attend your premises, most of the evidence will probably be acceptable in digital form. Where a visit to your premises is unavoidable you will by now have a tried and tested routine for safely welcoming visitors.
It’s not over until...
When the accounts have been discussed and approved by the Trustees, the auditor will sign their report. He or she may also submit a list of recommendations. Neither the audit report nor the recommendations should contain any surprises, as all matters arising should have been dealt with during the audit process. Usually, there are lessons to be learned by both the auditor and the management. Perhaps the financial controls could be improved, or management methods could be streamlined.
From the auditor’s point of view could there be better ways of fitting the audit work within the Trustees’ timetable or more efficient methods of exchanging information? This might amount to a formal debriefing, but more likely a short video call. In any case it is an opportunity not to be missed to make the most of your audit.
The next step
Should you have any queries in relation to any of the above, please contact Roland Givans or your usual UHY adviser.