Making the Most of the A udit Process
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The Unique Alternative to the Big Four ® Making the Most of the Audit Process Presented by: Jeff Jensen, CPA Crowe Horwath LLP
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Making the Most of the A udit Process. Presented by: Jeff J ensen, CPA Crowe Horwath LLP. Course Outline. What is the purpose of the audit? Responsibilities of Management, Auditor, and Audit Committees Audit planning tips and tricks Audit communications – the “fun” part of the audit! - PowerPoint PPT Presentation
Transcript of Making the Most of the A udit Process
The Unique Alternative to the Big Four®
Making the Most of the Audit Process
Presented by:Jeff Jensen, CPACrowe Horwath LLP
The Unique Alternative to the Big Four®
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Course Outline What is the purpose of the audit?
Responsibilities of Management, Auditor, and Audit Committees
Audit planning tips and tricks
Audit communications – the “fun” part of the audit!
The Management Letter
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A Client Once Told Me This Joke . . . Do You Know the Two Biggest Lies of Auditing?
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Auditor – “We’re Here to Help!”
Client – “It’s Great to See You!”
But it doesn’t HAVE to be like this….
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What is the Point of an Audit? Really just focuses on the financial statements and compliance.
Offers only a back-handed level of assurance regarding internal controls.
Keeps the accounting department motivated to follow processes throughout the year.
Satisfy regulatory, grant and donor requirements.
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Audit Responsibilities
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Management Responsibilities Maintain adequate records.
Maintain cost-effective level of internal control.
Respond fully to auditor information requests.
Facilitate communications with Board and Audit Committee (including discussions with auditors).
Follow-up on audit findings and recommendations.
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Auditor Responsibilities Plan the audit to be cost effective while meeting all applicable professional
standards. Perform a reasoned risk assessment regarding areas of potential control
weakness or complexity.
Maintain skeptical nature while treating management team with respect.
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Auditor Responsibilities (Continued) Endeavor to obtain all relevant facts when considering audit findings and
recommendations.
Exercise reasonable judgment in communications with management, the Audit Committee, and the Board.
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Audit Committee Responsibilities Consider scope of audit services. Are additional services deemed necessary?
Review auditor’s qualifications.
Assess adequacy of management’s response to audit findings and recommendations.
Report to the Board outcome of annual audit.
Perhaps – review draft of Form 990 (Foundation/Auxiliary) before it is filed.
Have an established purpose for the committee.
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Management and Audit Committee – A-133 Office of Management and Budget (OMB):
“When procuring audit services, the objective should be to obtain high quality audits.”
President's Council on Integrity and Efficiency (PCIE) study from 2007 = 51% of sampled audits were “unacceptable or limited reliability”
What should you consider when selecting an auditor?
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Planning Tips and Tricks
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Planning Tips and Tricks Have a call or meeting during the last quarter of the year to discuss logistics.
When will:
Engagement letter be sent? “PBC” letter be issued? Trial balance be ready? “Fieldwork” start? Drafts of the audit documents be issued? Audit Committee meetings be held? Finals be released? Draft 990 be released?
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Planning Tips and Tricks (Continued) Have there been any significant changes to the organization’s programs or
financial structure?
Has there been significant turnover?
Which management team member is the primary audit contact?
Are “preliminary” procedures worthwhile?
Does either party want formal, periodic progress updates?
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Planning Tips and Tricks (Continued) Any new federal grants?
Reviews conducted by federal agencies or other regulatory/oversight bodies?
Stay in frequent contact
Discuss new pronouncements and requirements in advance
Ask questions throughout the year…don’t “just wait” until the audit fieldwork gets here
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Information Sharing and Brainstorming AUDITORS and AUDITEES –
What things have you done to make your audit more effective and efficient?
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Audit Communications
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Audit Communications – Auditor & Client Auditors should keep management informed of all audit adjustments (including
passed adjustments) during the audit process. Do not wait until the end to discuss them with management.
Auditors should not begin drafting (or sharing with Audit Committee) the management letter/finding section of the report before they have discussed all potential comments with management!
Discuss potential A-133 findings and questioned costs as they are identified Management has more time to research the items. Expanded sample sizes and alternatives could be considered.
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Audit Communications – Audit Committees No Surprises During the Meeting! The Chair should be made aware of “issues”
before the meeting.
Auditors should be sure they have addressed any concerns raised by the Audit committee during the pre-audit call.
Encourage the Committee to dialogue with management.
Always hold an executive session with the auditor – even if there are no real issues to discuss.
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Report Findings & The Management Letter
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The Management Letter – Differing Views Auditee May Think:
Why is the auditor SO picky? Stress...I am getting fired I am an ethical person – that is not a
risk here! It may make you feel like this:
Auditors Intentions: Adding value Satisfying applicable standards Accountability to Audit Committee
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How Can You “Get the Most” From the Management Letter? Understand the following:
Background Requirements Classification levels
Collaborative effort: Discuss issues early in detail Mitigating control steps Possible resolutions
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The Management Letter Significant Deficiencies and Material Weaknesses MUST be included.
The importance of the COSO framework when considering potential audit comments.
Clarity standards give more encouragement for formal reporting of control deficiencies.
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What is a Significant Deficiency? A significant deficiency is a deficiency, or a combination of deficiencies, in
internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
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What is a Material Weakness? A material weakness is a deficiency or combination of deficiencies in internal
control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.
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What is an A-133 (or GAS) Finding? Government Auditing Standards (GAS), Section 7.18:
Auditors should report deficiencies in internal control, instances of fraud, noncompliance with provisions of laws, regulations, contracts, and grant agreements, and abuse and other deficiencies that have occurred or are likely to have occurred and are significant within the context of the objectives of the audit.
OMB Circular A-133, Section 105: Deficiency which the auditor is required by Section 510 to report in the schedule of
findings and questioned costs. Internal controls Compliance
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What is an A-133 (or GAS) Finding? A-133 Section 510
Significant deficiencies in internal control over major programs Material non-compliance with provisions of laws, regulations, contracts, or grant
agreements applicable to major programs Known questioned costs over $10,000 relating to a major program compliance
requirement Known questioned costs over $10,000 for a federal program that is not audited as major Circumstances concerning why the auditor’s report on major program compliance is
other than unqualified, unless already reported in another finding Known fraud affecting a federal award, unless already reported in another finding Instances where the auditor has noted that the auditee’s summary schedule of prior
audit findings materially misrepresents the actual status
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How Would YOU Classify These Items? Credit card documentation is not consistent and/or approvals are lacking
If required, timesheets are not reviewed and approved
A-133 eligibility testing – 3 out of 60 individuals served were not actually eligible Remember the impact of extrapolation!
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How Would YOU Classify These Items? Monthly financial statements are not prepared and reviewed by management
Lack of Board-level financial oversight
General ledger accounts are not routinely reconciled
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How Would YOU Classify These Items? Lack of segregation of financial duties
Unexpected audit adjustments
Restatements
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How Would YOU Classify These Items? Lack of open lines of internal communication between the accounting department
and the other departments within the organization
Poor contracting policies or ability to track contracts
Fraud has been committed by the Chancellor/President – but an immaterial dollar amount
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How Would YOU Classify These Items? Late remittances of employee benefit plan withholdings
Lack of adequate IT controls – security vulnerabilities, etc.
Budgeting process is inadequate
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How Would YOU Classify These Items? Inadequate accounting staff
CBO/Vice Chancellor can post journal entries without anyone else noticing or approving
Staff performance raises, etc. are not approved (or documentation is lacking)
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Questions?
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Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2013 Crowe Horwath LLP
Thank You for Your TimeJeff Jensen, CPACrowe Horwath LLPOffice [email protected]
