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The fact that you are reading this post means that you may be looking for insights about the audit process, or perhaps you are even about to go through it yourself. Indeed, in many cases, the audit process is very complicated, with various parties responsible for specific actions.  

It is crucial to understand what you are responsible for and understand what it all means. Having this understanding allows you to make informed decisions and to be as engaged in the audit process as you need to be. 

The Audit Document Request List

When you start the audit, you will receive an audit document request list. The audit document request list is a list of documents, schedules, and a variety of information requested by your auditor so that they can perform the audit. This list of documents can feel intimidating due to the overall volume of the requests in this list. But in many cases, this list includes schedules that you already prepare every month and/or items related to the permanent file. Such as by-laws or lease agreements that only need to be included if there were any updates made to them during the current fiscal year. 

The Management Group 

We often tell our clients that the "management group" within their organization is responsible for the financial statements. For example, this typically includes the Executive Director and Chief Financial Officer or equivalent for a nonprofit organization. It may also include the Board of Directors. Management is responsible for the financial statements and the notes related to those statements. The Board of Directors is responsible for providing oversight of management functions. The board is also responsible for ensuring that management implements and maintains appropriate internal controls needed to prevent misstatements from occurring—whether caused by fraud or error. The Board has fiduciary and ethical responsibilities to the organization to ensure that the financial statements contain no material misstatements. 

The Managing Agent 

If you use a third-party accountant or CPA firm to help them perform the necessary accounting functions. The responsibility of such third parties is to assist the Board in properly recording transactions, implementing and maintaining effective internal controls, and coordinating activities with the auditor. Keep in mind this critical distinction the nonprofit's financial statements and operations are the Board's responsibility, while the managing agent is there to assist them. 

The Auditor 

Meanwhile, the auditor also has responsibilities, including planning, performing, and conducting an audit—in accordance with auditing standards generally accepted in the U.S.—to obtain reasonable assurance that the financial statements are free of material misstatements, whether caused by fraud or error. The auditor is also responsible for understanding the entity's environment, operations, and internal controls sufficient to assess the risk of material misstatements. Although an audit is not designed to provide assurance on internal controls, the auditor is responsible for communicating any matters related to internal controls that are required by professional standards. 

The Audit 

It's important to understand that an audit is designed to provide reasonable but not absolute assurance. This means that there may still be a risk that misstatements exist (again, whether caused by either fraud or error).  

You can find additional details about the different parties' responsibilities in the audit engagement letter and documents that accompany the audit report, including management letters and representation letters. If you hold the position of a Board member or managing agent official, you must read the documents that the audit firm provides you. 

If an issue arises concerning the audit, understanding your responsibility will help protect you. But whatever your concerns, don't be afraid to ask questions. Contact us; we will be glad to help you understand what you are looking at—and what you are signing off on.