You may not all be excited by headlines about auditing! But audit quality is in the spotlight, with a real focus on driving up the quality of the external audit process. Although this has stemmed from some of the high profile, large corporate failures, this has to bring benefits to all organisations needing an external audit and should result in better value for money from the process. So how do we do it?
Clearly, much of the responsibility for this lies with the auditor. However, in a recent (November 2022) publication by the Financial Reporting Council ‘What makes a good environment for auditor scepticism and challenge’, it also highlights the responsibilities of the organisation being audited. Audit quality is achieved when you have a ‘well-functioning ecosystem’ of all of the parties involved in the audit.
Whether you are a charity finance manager, or a trustee sitting on a board or audit committee, this blog is to help you understand what that might mean for you and how you can play your part in improving audit quality.
Let’s start with auditor responsibilities …
For an audit to go well, the audit team needs to:
- have an appropriate tone from the top set by the audit partner – the audit team needs to know that the audit partner values and champions the right audit behaviours;
- be fully resourced, at the right time, and have the specialist knowledge to undertake the work;
- have time to create an effective learning environment – you will have auditors who are developing through on the job coaching – do be mindful of this – there will be a team focus on learning and continuous improvement; and
- demonstrate good project management and communicate the plan effectively – we need time to review, to raise queries and to challenge – we are always seeking to avoid a last minute rush at the end of the process.
So what is needed is a good plan – the right people, at the right time, providing good quality information in a supervised learning environment. Sounding familiar? Why not mirror this within your organisation…
Charity finance team and management responsibilities – how can you support the audit?
The audit work is carried out on the information provided by you, so ensuring that this is of good quality and on time, is key to the audit process going smoothly. The following questions may help you think about how to prepare:
Capacity and availability:
- Do you also have the right resourcing in place and capacity to deliver to the agreed plan?
- Will your team be available to answer the auditor’s queries? Providing the initial information requested on time is great, but there will be follow up questions.
Quality and timely information:
- Has your team been fully resourced throughout the financial year?
- Are the underlying records of good quality, and have internal controls been operating effectively? Have you had any IT or systems issues?
- What might you need to communicate to the auditor about this at the start of the process?
- If you are preparing the statutory accounts, can you provide these to the auditor before the start of the main audit visit? This includes all notes and narrative disclosures.
- The trustees’ annual report is covered by the audit – this is often provided very late- can you provide it along with the financial statements?
Knowledge and expertise:
- Do you have the expertise to prepare what has been agreed with your auditor?
- Have you engaged the right experts to help you – surveyors for property valuations, third party firms for stock counts etc?
Communication and behaviours:
- Keep in touch during the year – raise technical issues when they arise – don’t wait for the audit – a no surprises audit works both ways!
- If there is a way in which you prefer to work – please tell us – so meet at the end of every day to go through queries? We can be flexible and work around you – but do communicate this.
- Be open to challenge – value the purpose of the audit – driving up audit quality should help you to be more effective.
Charity audit committee responsibilities – what is your contribution to the good governance of the audit process?
Your charity may have a full audit or finance committee, or perhaps a trustee with a finance focus on a treasurer. Whoever is responsible for audit governance needs to be actively engaged in the process with a good understanding of what produces a good quality audit.
It is important to hold your auditor to account, and also to check that your management team are delivering. Ways in which you can do this are:
- Engaging with the audit plan and considering whether the timetable is realistic – do your scheduled meetings support the audit plan – or put it under unnecessary pressure?
- Checking in with your management team during the process – have key milestones been delivered on time – is the timetable being achieved?
- Reviewing the trustees’ annual report and accounts at an early stage – check if anything is not in line with your expectations.
- Enquiring of management whether the accounts contain any significant estimates or judgements that you may need to understand and challenge.
- Reviewing and challenging the assessment on going concern (the organisation’s ability to continue operating for 12 months from the date of approval of the accounts) before it is presented to the auditors – do you agree with the conclusion?
- When your auditor presents the audit findings – making sure you have read the papers in advance and ask questions – this is your opportunity to ensure you are getting the assurance you want from the process.
- Hold a de-brief session with the auditors (without management) at the end of the process – were there any conflicts during the audit? What is the auditor’s feedback on how the process went and how the audit was valued?
As auditors, we are trained to have questioning minds and to apply professional scepticism.
There are new requirements now for us to consider contradictory evidence, as well as corroborative evidence, so do expect more questions around what may disprove what you are sharing with us. The better the quality of the underlying information that is provided to us, the more time we have available to think and provide constructive challenge – that is where the focus of the audit should be.
If you have any observations on the above, I welcome your contributions. Please do get in touch with me directly if have any specific queries relating to your organisation, I would love to hear from you.