What do auditors do to liven up the party?

15 Feb 2021 | Learning, Support & Resources

They don’t turn up!

By Ken Collings (Chartered Accountant and ex-auditor)

There are heaps of jokes about auditors but when you want to get one it’s not so funny. First, they are hard to find and second, the fees can be pretty expensive, so why do we want an audit at all? Maybe the amount of cash flowing through the accounts or the value of the things that you own are just not worth the hassle.

Well maybe you don’t!  Let’s check out the reasons why you are having an audit in the first place

  1. The Law requires it

If your operating expenses are bigger than $500,000, or if you are publicly accountable you must have an audit carried out by a qualified auditor. Other than that, the Charities Commission will not require an audit if your own Constitution does not require it.

However, most of you reading this (as being part of a charity), your organisation won’t be anywhere near that size, and nor will you be publicly accountable, so you are not required by law to be audited or reviewed, but perhaps you are hung up by your Constitution.

  1. Your Constitution Requires It

Frequently the constitution or rules of an organisation will require an audit. They will say something like:

 “The Accounts of the organisation will as soon as practical after the end of the financial year will be audited by a Chartered Accountant who shall not be a Board Member and who is appointed at each Annual General Meeting”.

But you can change your constitution so that you do not require an audit, or you could have a review instead (see below). Or you could change the constitution so that auditor does not need to be a Chartered Accountant but some that the Board believes to be competent to do the audit.

  1. Your Head Office or your funders require an Audit,

If your National Office require it, ask them to justify that decision. Similar for your funders, ask them. TECT for instance does not require audited accounts unless your constitution requires it, so ask your funders. It is also worthwhile adding audit fees to your application for funding so that the funders know what they are asking you to do.

  1. Perhaps your members want to be reassured that no fraud has taken place during the year.

“Contrary to popular belief, the main purpose of an audit is actually not to detect fraud. The main purpose is to express an opinion over the financial accounts of an organisation as to whether the accounts present a true and fair view of the organisation as a whole. The Charities Commission states that it is ‘up to the organisation itself to design internal procedures that would make it hard for fraud to be committed, although it is possible that an audit may pick up some fraud’.  

The responsibility for preventing and discovering fraud in your organisation is not the auditor, it is the Board. Good governance is the best cure for this. Think about what is at risk. If your bank balance is normally only a few thousand dollars and you don’t own any other assets is fraud really a problem?

  1. If you still think you want an audit you could perhaps make it cheaper

Why do you think an audit is so expensive? Auditors are not mean and profit hungry creatures but if you choose to be audited the auditor has certain responsibilities placed on her (or him) by law. They must ensure that your accounts comply with all the appropriate accounting reporting standards. They must test that your Board is doing the job properly, and that the organisation is complying with the law in all respects.

Then, the biggy, they have to certify that in their opinion everything is OK. That brings lots of personal risk to the auditor and insurance of that risk is awfully expensive. You may not realise it, but in a typical small straight forward audit with no complications my working papers will typically be in excess of 100 A4 pages and will take about 30 hours to complete. That is a lot to ask for free – or even very little.

But you can make it cheaper. You could have a review instead of an audit.

What is the difference between audit and review?

The difference is basically the different levels or assurance, the report wording, detailed or less detailed procedure description and the assurance standards. For more information, please see https://charities.govt.nz/reporting-standards/new-statutory-audit-and-review-requirements/

A review will be cheaper. Another useful point to remember is that for Tier 3 and Tier 4 entities that do not have a statutory requirement to review or audit (but choose to anyway) there is the option to exclude the non-financial information from the engagement. Even this is a help.

Finally, if you have good auditor be nice to them and hang on to them… they are hard to replace.

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