01 Jun How to achieve an expedient and cost-effective audit
In this era of the 24-hour news cycle and instant social media amplification of any scandal, nonprofit organizations have to be more cautious than ever about their stewardship. Funders have seen and heard too many stories of fraud, malfeasance, and poor financial leadership within businesses. In this guide, we discuss how to achieve an expedient and cost-effective audit.
Beyond legal compliance, there are four primary ways that an audit can help your organization:
- Audits guard the reputation of a well-managed nonprofit organization.
- With greater competition for donors, audits help secure funding.
- Funders rely on audits to provide confirmation of accountability and compliance.
- An audit increases transparency into financial management, performance, and impact.
Table Of Contents
What Goes into an Audit?
The audit of an organization consists of two parts:
An auditor review of your GAAP-compliant financial statements, and a separate compliance audit to assess risk and internal controls. Most financial statement risk in any organization comes from errors in judgment or faulty financial management processes. Therefore, an audit will be most beneficial if your auditor can spend more time on your compliance audit to get a better assessment of your organization’s risk.
Risk Assessment Process
The key to audit readiness is well-documented transactions and balances. An audit will assess the different types of risk to enable the auditor to become familiar with your internal controls and your accounting and reporting processes. The auditor will want to understand where your risk lies to issue an informed opinion on your organization’s GAAP conformity.
Effective internal controls reduce the risk of a material misstatement, so testing your internal controls will be an important part of the risk assessment. Based on the result of controls testing, the auditor will then test your accounting and reporting process by:
- Checking calculations
- Examining records and source documents to support balances and transactions
- Confirming certain balances and transactions with third parties
- Where applicable, physically observing assets.
To have audit-ready financials, organizations should thoroughly document transactions and balances within a modern financial accounting system.
How to Produce Audit-Ready Financials in the Cloud
Preparing audit-ready financials can be easier in theory than in practice if you lack a modern financial management system. When accounting software is outdated or lacks features, the audit process quickly becomes mired in sorting through the accounting records rather than identifying risk. Modern cloud accounting software will save your finance team and your auditor a significant amount of time and prove to your key stakeholders that your financial statements are audit-ready.
Modern cloud accounting software streamlines and automates:
- The organization of funding sources
- The documentation of accounting treatments
- The calculation and reconciliation of all figures
- The closing and consolidation of the books
- The preparation of financial statements
Looking to learn more about how to achieve an expedient and cost-effective audit? Drop us a line on 011 792 9521 and we’d be glad to guide you in choosing the ideal financial management solution to meet your business needs.