What should charity trustees expect from an auditing firm?

Posted on: April 10th, 2018 by Sarah Price No Comments

What should charity trustees expect from an auditing firm? Frank Learner looks from the other side of the fence.

Having been a treasurer/trustee with three charities (consecutively) for 15 years, I can reflect on my experience of 4 auditing firms.

My overall view is that an effective auditing firm should act as the charity’s guide for:

  • Sector knowledge-based improvements.
  • The growing complexity of compliance.
  • The new treasurer or finance manager.

The relationship with an auditing firm takes time to build, and a good starting point is that a charity should have its own house in order before the audit (or independent examination) takes place. This means at least covering the obvious basics such as up-to-date bank reconciliations and addressing observations from the previous year. Such client shortcomings are likely to impact on client credibility and possibly lead to extra fees. Above all, the relationship should be about communication – consulting the auditing firm sooner rather than later about potential issues.

It can be painfully obvious when a charity has an auditing firm that is not a charity specialist; the accounts may not be SORP-compliant or can be ‘unbalanced’ – such as 57% of costs classified as governance. A charity’s accounts are probably going to be scrutinised by a prospective funder; based on the accounts of other charity clients, a specialist should be suggesting good practice and improvements that can enhance a charity’s funding prospects through ‘beyond-compliance’ accounts. Furthermore, sound financial governance helps to produce good financial performance; an audit will look at a charity’s significant financial controls. A charity specialist should be able to helpfully comment on charity-specifics such as the management of restricted funds.

The Charity SORP is not getting simpler; the 2015 revamp introduced factors such as key management personnel disclosure and financial instruments. A charity specialist should be keeping abreast of coming regulational changes and giving client-friendly briefings and awareness material in advance – with specific interpretations for a client as appropriate. Bear with the auditing firm if it seems to be asking even more questions on aspects like related party existence; as compliance grows, so does the auditing firm’s professional remit.

An auditing firm has a particular continuity role to play when a charity has a new finance manager or treasurer. At the audit planning meeting, the firm should outline the development of the accounts’ approach and explain any recommendations from the previous year. The firm should also establish the newcomer’s currency on charity accounting – recommending training courses and introductory reference material as appropriate.

My particular ‘bugbears’ with auditing firms have been:

  • Disallowing a particular presentation of the accounts because of a firm’s accounting software limitation. The SORP has many flexibilities on presentation and depth of disclosure that the client should be able to exploit.
  • Interpretation of grey areas of the SORP; is there flexibility to accommodate a client’s preference within the SORP’s spirit and the auditing firm’s professional standards?
  • Careless amalgamation of a carefully-prepared trustees’ annual report with the accounts – causing extra proof-reading and correction.

Communication should be the approach when such issues arise.

A common discussion point is the frequency at which a charity should review the performance of its auditing firm. My view is that an audit relationship should be given 3 years to bed-in – and thereafter be subject to annual review. The focus of such an annual review can be summarised by asking if the auditing firm:

  • Is still giving good value.
  • Has expertise appropriate to the charity’s future direction.
  • Remains independent and proactive, rather than becoming complacent – believing that the familiar approach will suffice.
  • Is still projecting the appropriate chemistry, initiative, zest and approach.

For those who want to look deeper, MHA has produced this 26-point review: https://www.macintyrehudson.co.uk/uploads/gated/how_to_assess_the_performance_of_your_auditor.pdf

To conclude: in the same way that a charity’s annual accounts should be seen as a funding aid rather than a compliance burden, is the current auditing firm seen as a valued partner?

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