Making the Most of the - PowerPoint Presentation

Slide1

Making the Most of the Audit Process

Presented by:

Jeff

J

ensen, CPA

Crowe Horwath LLPSlide2

Course Outline

What is the purpose of the audit?

Responsibilities of Management, Auditor, and Audit Committees

Audit planning tips and tricksAudit communications – the “fun” part of the audit!The Management Letter CD

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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….Slide4

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.Slide5

Audit ResponsibilitiesSlide6

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.Slide7

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.Slide8

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.Slide9

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.Slide10

Management and Audit Committee – A-133Office 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?Slide11

Planning Tips and TricksSlide12

Planning Tips and TricksHave 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?Slide13

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?Slide14

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 hereSlide15

Information Sharing and BrainstormingAUDITORS and AUDITEES – What things have you done to make your audit more effective and efficient?Slide16

Audit CommunicationsSlide17

Audit Communications – Auditor & ClientAuditors 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.Slide18

Audit Communications – Audit CommitteesNo 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.Slide19

Report Findings & The Management LetterSlide20

The Management Letter – Differing ViewsAuditee May Think:Why is the auditor SO picky?Stress...I am getting firedI 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 CommitteeSlide21

How Can You “Get the Most” From the Management Letter?Understand the following:BackgroundRequirementsClassification levelsCollaborative effort:Discuss issues early in detail

Mitigating control steps

Possible resolutionsSlide22

The Management LetterSignificant 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.Slide23

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. Slide24

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. Slide25

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

ComplianceSlide26

What is an A-133 (or GAS) Finding?A-133 Section 510Significant deficiencies in internal control over major programsMaterial non-compliance with provisions of laws, regulations, contracts, or grant agreements applicable to major programsKnown questioned costs over $10,000 relating to a major program compliance requirementKnown 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 statusSlide27

How Would YOU Classify These Items?Credit card documentation is not consistent and/or approvals are lackingIf required, timesheets are not reviewed and approvedA-133 eligibility testing – 3 out of 60 individuals served were not actually eligibleRemember the impact of extrapolation!Slide28

How Would YOU Classify These Items?Monthly financial statements are not prepared and reviewed by managementLack of Board-level financial oversightGeneral ledger accounts are not routinely reconciledSlide29

How Would YOU Classify These Items?Lack of segregation of financial dutiesUnexpected audit adjustmentsRestatementsSlide30

How Would YOU Classify These Items?Lack of open lines of internal communication between the accounting department and the other departments within the organizationPoor contracting policies or ability to track contractsFraud has been committed by the Chancellor/President – but an immaterial dollar amountSlide31

How Would YOU Classify These Items?Late remittances of employee benefit plan withholdingsLack of adequate IT controls – security vulnerabilities, etc. Budgeting process is inadequateSlide32

How Would YOU Classify These Items?Inadequate accounting staffCBO/Vice Chancellor can post journal entries without anyone else noticing or approvingStaff performance raises, etc. are not approved (or documentation is lacking)Slide33

Questions?Slide34

Thank You for Your TimeJeff Jensen, CPACrowe Horwath LLPOffice 916.441.1000

Jeff.Jensen@crowehorwath.com