What Are Your Responsibilities During an Audit?
Posted on Wednesday, September 06, 2017 Share
So you’ve decided that your organization needs to have an audit. Before the audit engagement starts, are you aware of what your responsibilities are as the auditee? Do you know what your auditor’s responsibilities are?
As the organization under audit, your responsibilities include the following:
- Establish and maintain internal controls.
- The selection and application of accounting principles.
- Preparation and fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles (or another method of accounting such as the cash basis or modified cash basis).
- Provide access to information relevant to the preparation of the financial statements.
- The design and implementation of programs and controls to prevent and detect fraud.
- To inform auditors of all known or suspected fraud.
- Identify and ensure the Organization complies with applicable laws and regulations (ex. Annual federal and state reporting taxes, payroll forms and taxes, sales taxes, unrelated business income, grant requirements, federal and state compliance, etc.)
- Assume management responsibilities for tax services, financial statement preparation services, and any other nonattest services provided. (Someone at your organization needs to understand any additional services provided by your auditor that are outside the scope of the audit. These can include payroll services, maintaining a depreciation schedule, consulting, and proposed correcting journal entries.)
Your auditor also has specific responsibilities that must be followed:
- Maintain independence.
- Conduct the audit in accordance with auditing standards generally accepted in the United States of America (GAAS). (There are specific auditing procedures that your auditor must follow. In addition, your auditor most likely has a peer review done by an independent firm to make sure they are properly following those procedures.)
- Plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant account estimates made by management.
- Consider the organization’s internal controls. (Your auditor is not required to audit your internal controls but they must understand them and take them into consideration as part of their audit procedures.)
Many people also think it is the auditor’s responsibility to find fraud. It is not. Your auditor is not responsible for finding fraud. If your auditor finds fraud during their audit procedures they are responsible for communicating it; however, finding fraud is not one of the purposes of an audit.
Before your audit begins, you should receive an engagement letter to sign from your auditor that outlines these responsibilities as noted above. As you review the letter, if you have questions, make sure you ask your auditor for further explanations.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.