Professional Documents
Culture Documents
AGENDA
10. The auditors room is like being in solitary confinement. 9. The client likens auditors to the Bermuda Triangle anything lost, the auditor did it. 8. Last years adjustments were never made. 7. Each year, the auditors become the temporary bookkeepers. 6. The Accounting department is told only to give name, rank, and serial number to any questions asked.
5. The audit is a great time to schedule vacations. 4. The client contact is like Sergeant Shultz on Hogans Heroes I know nothing. 3. Typical response to management letter Well consider it next year. 2. Standard reconciling item unexplained difference. 1. Clients perspective of fixed fees means I can cause unto you delays, inefficiencies, etc., but you cannot increase billings unto me.
The typical response is people, staff, or employees. This is not correct, at least not totally correct.
However, Knowledge Capital is always invested in our people, and maintained by our people.
Continually develop and invest in our people, and Document and maintain processes and procedures.
Take the opportunity we have in readying for SAS 112 to create and/or enhance our documentation of Internal Controls.
More control deficiencies will be considered severe. The auditor must consider the potential magnitude of a control deficiency rather than the actual magnitude as follows:
Would prudent officials with knowledge of the facts and circumstances agree with the auditors assessment?
Are effective compensating or complementary controls in place? What is material to the financial statements from a quantitative and qualitative perspective?
More control deficiencies will likely be considered significant and/or material and will be communicated more broadly to stakeholders. The auditor has less judgment and will require more evidence and documentation from management to support his conclusions about the effectiveness of internal controls.
Unreliable Unpredictable environment where control activities are not designed or in place
Under SAS 112, controls must be documented in order for auditors to rely on them. Moving to the right on the maturity framework will take on greater urgency in the new environment.
Educate your board. Inventory the significant accounts, disclosures, and components as well as the processes and cycles. Year One: Consider documenting IT controls, Payroll Controls and Preparation of Financial Statements
What controls are in place? Are controls automated or manual? Are controls documented?
Effort reporting.
What controls are in place? Who reviews estimates? What documentation exists? What adjustments does the auditor propose as a result of the annual independent audit? Review adjustments and unadjusted differences proposed over the last three to five years.
Work papers that support the financial statements Accounting and disclosure checklists Proof of the accuracy and completeness of release of restrictions transfer, etc.
In the second year, consider reviewing controls over other areas, such as:
Revenue recognition Cut-off UBTI assessment Board approval Spending formulas Honoring donor restrictions
Endowment
In the second year, consider reviewing controls over other areas, such as (cont):
How do you know your controls are effective? Is there adequate segregation of duties? Are reviews documented?
Are all SAS 70 reports of outside service organizations reviewed and documented? Is the level of communication among management, internal and external auditors, and the audit committee adequate?
Time is rapidly passing since SAS 112 became effective for December 31, 2006 year-end audits and will be effective for all June 30, 2007 year ends
Use of Estimates
Collectibility of pledges and/or accounts receivable Discount rate on pledges Estimated useful lives of fixed assets Fair value of other assets Allocation of joint costs Functional allocation of expenses
Use of Estimates
Auditors role with Estimates: Discuss with management the method of determining balance;
Evaluate whether the assumptions used are consistent with each other, the prior year, supporting data, relevant historical data, and industry data; Determine whether accounting estimates are in compliance with GAAP;
Closing the books is the process that an organization uses to reconcile, consolidate, and report financial information on a periodic basis. Each organization defines the process a little differently; not all organizations complete the same list of tasks to close their books. Among the tasks that organizations may include in the process are the following:
Among the tasks that organizations may include in the process are the following (cont):
Completing journal entries. Consolidating data from outlying business units. Preparing trial balances Correcting errors
Among the tasks that organizations may include in the process are the following (cont): Preparing and distributing reports Supervising closing tasks and reviewing key accounts and reports An investigation of the process of closing the books usually reveals opportunities to improve speed and accuracy.
A fast, accurate close-the-books process provides multiple benefits for the finance function and for the organization.
Utilize a monthly and annual closing checklist to document assignments, control points as well as approvals
Distributed in print
Customizable
Administrative Tools Audit Committee Charter Matrix* Financial Expertise* Sample RFP for CPA Services Independence and Related Issues* Peer Review of CPA Firms Evaluating the Auditors Engagement Letter Hiring the Chief Audit Executive Hiring External Experts
Audit Process Tools Internal Control Fraud and the Audit Committee* Whistleblower Tracking Report* Conducting an Audit Committee Executive Session* Issues Report From Management Discussions With the Independent Auditors*
Audit Committee Responsibilities As Related to Financial Statements 13. Inquire of the executive director and CFO regarding the sources of support and revenue of the organization from a subjective as well as an objective standpoint. 14. Review with the independent auditors and the CAE: The adequacy of the organizations internal controls,
17. Review with each public accounting firm that performs an audit: All critical accounting policies and practices used by the organization.
All alternative treatments of financial information 18. Review all material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.
19. Review with management and the independent auditors: annual financial statements and related footnotes independent auditors audit of the financial statements and their report thereon judgments about the quality, not just the acceptability, of the organizations accounting principles as applied in its financial reporting Any significant changes required in the independent auditors audit plan Any serious difficulties or disputes with management
Audit Committee Responsibilities As Related to Financial Statements, Contd. 20. Review with the general counsel and the CAE, legal and regulatory matters that, in the opinion of management, may have a material impact on the financial statements, related organization compliance policies, and programs and reports received from regulators.
Client Expectations
Qualified Staff Minimal Turnover Knowledgeable About Business Flexibility of Audit Schedule Formats More Value Out of Audit Keep Informed on Current Events Training of Client Personnel Effective and Timely Communication
Auditor Expectations
QUESTIONS?????