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How to have an easy audit season in 2023

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Over the years, we’ve provided a number of resources on the topic of auditing for NFP organisations here at Accounting For Good, but let’s revisit one of our popular ones: how to have an easy audit season.

We know the end of the financial year can be stressful for NFP accountants. But whether your organisation requires an audit in line with your revenue threshold or it’s an obligation from your funding body, you can plan for an easy audit season by following these tips.

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Know what to expect

First, know what to expect, because auditing of not for profits isn’t necessary for every organisation. The obligations vary depending on several factors, such as your NFP’s annual revenue, funding obligations, constitution and incorporation. ACNC-registered charities are governed by the ACNC rules, rather than ASIC, with the requirement for an audit driven by the size of the charity.

The ACNC rules changed for the 2022 reporting period so those new thresholds are now firmly in place. If your charity has revenue of under $500,000, you are not required by the ACNC to have an audit or review, and may choose to provide financial statements if you wish. Those charities with revenue under the $3 million mark are now in the ‘medium’ bracket and can choose an audit or a review.

Non-charity NFPs will need to follow different requirements as per ASIC and the state in which the organisation is incorporated. In NSW, charities only need to follow the reporting rules set by the ACNC. However, for other organisations that make more than $250,000 in revenue each year, they must go through an audit.

In Victoria, the audit requirements depend on how much money an organisation makes. If an organisation’s revenue falls between $250,000 and $1 million, they can choose to have a review instead of a full audit. But if the revenue exceeds $1 million, a comprehensive audit is mandatory. Charities registered with the ACNC only need to report to the ACNC and don’t have to report to the Consumer Affairs Victoria (CAV). These requirements are effectively the same as NSW, but they’re represented differently!

While in QLD, charities are also only required to report to the ACNC and are exempt from additional reporting obligations. This simpler reporting process ensures that charities in QLD have an easier time meeting the requirements of the ACNC.

Now, what is a review? Simply, a review is often considered a ‘light’ audit in that, while it is a formal assessment of the financial statements, it has a more moderate level of assurance than an audit, doesn’t give an ‘opinion’ as to compliance with the Standards or the Act, and can cost less in both time and money.

Don’t forget that the ACNC is not the only stakeholder in relation to audit – many funding bodies require funded organisations to undertake an audit, and it’s not uncommon for your constitution to specify that an audit must be undertaken annually.

However, for those with an annual revenue of over $3 million if ACNC-registered, a yearly audit is mandatory. If you are required to have an audit, there are several ways to make the process much smoother.

One piece of advice is building a healthy relationship with your auditor – they’re an integral part of an NFP’s support structure and one of the most essential external stakeholders.

The more you can facilitate a clear, transparent connection with them, the better off you’ll be come audit time.

Knowing how to choose a not for profit auditor is key here. Choose someone who can help your organisation achieve their goals while remaining compliant and accountable, as well as someone who can provide reliable reporting and financial management.

This strengthens your NFP’s credibility in the eyes of other – yet equally important – external stakeholders such as donors.

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Prepare your documents and reports

Audits will always be conducted after the end of the financial year and can’t be done until accounts are completed. Some auditors will do an interim audit prior to the EOFY. This can be done by focusing on policy, procedures and controls so the auditors can get on with the substantive accounts work at the final audit. Others choose to do preliminary P&L testing in the interim so they can feel confident about quality and can focus on the bigger pieces during the final audit.

While the official end date of the financial year is technically the 30th of June, the work involved in preparing for and undertaking the audit continues beyond this date throughout July, August and September, and sometimes even through to October.

This might seem like too long, but it’s necessary in order to fulfil reporting obligations to funders and stakeholders and ensure the financial statements receive approval from the Board in time for presentation at the Annual General Meeting (AGM).

If you’re using a cloud-based accounting platform such as Xero, you’ll find the features such as attaching supporting documentation to transactions means you can provide your auditor with quick insight into what funds were spent where.

But however you choose to prepare, planning ahead, requesting a ‘requirements list’ from your auditor and working through it in advance of the audit visit will set you up for a much smoother audit.

Reconcile, reconcile, reconcile! Does the balance of your PAYG liability accounts reconcile with the PAYG withheld via payroll and your payments to the ATO? How about Superannuation? GST?

Is your annual leave balance accurate – reflecting the leave taken and accrued since last balance date? Is it ‘grossed up’ to include super and leave loading? How about Long Service Leave? Does the balance reflect the ‘probability method’ or just the accrued entitlements?

Make sure you have supporting work papers available for each balance sheet account and share them with your auditor.

Many funders require an audit of their funding specifically, in addition to the full organisation audit. Make sure you understand these obligations before the auditors start, you don’t want to have to get them back at additional cost, and you may struggle to get extra time – it is peak season for the auditors too. If you don’t already hold separate cost centres in your accounting software, you’ll need to identify the income and expense relating to the funding and prepare an Income & Expense Statement ready for audit.

And if you do already have your various activities and funding streams neatly managed in your accounting software, now is an excellent time to do a thorough review of expenditure to budget – it’s easier to deal with any under- or over-spends now than after the financial year has closed.

Using tech to save time and improve security

Automation and AI continue to mature and the technology in NFP accounting has seen its fair share of advancements. But you don’t need to be a tech whiz to make automation work for you. There are plenty of quick tricks you can implement that will make your auditing season run much smoother.

Tech tools such as cloud-based software can streamline collaboration efforts between you and your auditor by providing a secure space for you to upload all relevant documentation that your auditor will need.

This kind of shared online platform will help you avoid needing to print out reams of reports and information, which can save both you and the auditor precious time and effort in collating all the necessary information.

Data collection and analysis tools can also support you during audit time by collecting and analysing all the relevant data that both yourself and your auditor will want to review, giving you the opportunity to make insight-driven decisions and improve processes for the next financial year.

The benefits of an audit for NFP organisations

Audits can help you identify areas of improvement and increase your financial performance. Audit need not be a stressful experience, you can take steps to prepare yourself and ensure compliance with accounting standards and applicable regulations.

For more information on audits for NFP organisations, take a look at these additional not for profit audit resources:

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