Do I Need An Audit?

by | Dec 7, 2015 | Tax and Accounting Desk

Board members are responsible for the financial health of an organization. Many times when new board members take control they want an audit to ensure they fulfill their fiduciary duty. But is an audit the right answer? Many times it is not.

An audit is designed to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error. The procedures performed depend on the auditor’s judgement, based on the risks assessed and the understanding of the entity obtained. An audit does not include a review of all transactions and may not address the true concerns of the board.

Are there other options?

Yes! In situations such as this, the board may want to consider an agreed-upon procedures engagement, or a consulting engagement. In an agreed-upon procedures engagement, the auditor is engaged to perform specific procedures that are of audit nature, that the auditor and the entity have agreed and to report on factual findings. The procedures to be performed can be narrowed specifically to address the concerns of new board members and provide them feedback. The possibility of procedures is extensive, but some examples are as follows:

• An inspection of disbursements during the year to ensure there is supporting documentation
and the checks were signed by an authorized individual.
• A review of employee timesheets and comparison to payroll records.
• Testing of specific controls during a specified time frame.
• A review of all bank reconciliations during a specified time frame
• Comparing the donor records by the accounting department to those of the
development  department for any discrepancies.
• Compare deposit details prepared by the clerk to the deposits on the bank statements.

The auditor is required to be independent to perform agreed-upon procedures engagements and all procedures to be performed must be in writing and agreed-upon by all parties involved. Based on the findings reported by the auditor, management could elect to expand the engagement and have additional procedures performed.

For organizations that may need more assistance in getting their financial information organized, the board may consider engaging a CPA as a consultant. Under a consulting engagement, the CPA can perform similar procedures as discussed above, but the consulting engagement does not require the accountant to be independent. The lack of independence required allows the CPA to assist with bookkeeping or other assistance that is required to better present financial results, in addition to the specified procedures.


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