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Southern Region Community Skills
Website
An Initiative
of
Rotary Club of Bunbury
Leschenault
Volunteer South
West
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PREPARING FOR YOUR ANNUAL AUDIT The preparation of an annual financial statement and subsequent audit is governed by the organisation’s Constitution. If there is no requirement for audit, remember that an audit helps protect the Treasurer and Committee and can help prevent lack of confidence in the proper management of the organisation’s affairs. Several community organisations are finding it difficult to find an auditor at present ; this is because professional accountants are under pressure with their workloads and also have to comply with Audit Standards which have become very stringent. The consequence is that fewer and fewer accountants are doing audit work. In a moment I will make a suggestion to help you find an auditor, but first let’s divide Community Associations into 2 groups – the majority, which are relatively small organisations whose financial statements are a “Statement of Receipts and Payments and Cash Balances” – and the minority, being larger organisations which need to prepare a “Profit & Loss Account” and “Balance Sheet”, which is altogether a more complex assignment. As a guide to whether your organisation is in the majority that can keep to the simpler financial statements, if the total annual revenue / expenditure is less than $50,000, I suggest it is possible that this would be satisfactory, subject to any Constitutional requirements . From now onwards, I am going to restrict my comments to such organisations. So ….. let’s get back to the auditor …… a smaller organisation does not necessarily need a professional accountant to conduct the audit; any person who has worked on the financial side of a business, eg in a bank or a small business, may have the credentials to be your auditor. The acid test, perhaps, is whether the person can perform a bank reconciliation and can prepare a simple financial statement. I have often found that non-accountants can do very good audits, particularly if they they know the organisation well, because they are likely to pick up things that ‘look wrong’. However, the auditor cannot be involved with the bookkeeping or be a member of the Committee. ( These suggestions are in line with the recommendations of DOCEP in it’s draft Associations Incorporation Bill.) Having dealt with that, let’s now get on with the hard work – getting the records ready for audit ! I shall try to deal with the process in a logical order: - plan the audit timeline by working backwards from the AGM date; the auditor needs to receive the records at least 3 weeks prior to the AGM, but discuss this with him or her.The year end date will often be 30 June but check the Constitution just in case!
- the auditor will need the following records – cash payments book; cash receipts book; all bank statements including deposit accounts; bank deposit book; receipts records eg duplicate receipt book; invoices supporting payments; minutes of committee meetings; corrospondence relating to grants and other important financial items; BAS statements (if GST is applicable ) .
- the cash payments and cash receipt books should be written up in logical order, i.e. cheque number or receipt number ( which will tend to be date order ). The books should be analysed across the main headings of payments and receipt, and the columns totalled. The totals of the analysis columns should add up to the total of the main column.
- if possible, the cash books should be reconciled to the bank statements.
- the supporting documents should be appropriately filed in logical order, to enable easy cross reference to the cash books .
- if possible, the Statement of Receipts and Payments and Cash Balances should be prepared.
- If there is grant income which needs to be acquitted in a separate report, it will be helpful to to have the grant documentation in a separate file for the auditor. Discuss the requirements with the auditor, so that you can prepare the supporting records and statements in the best way possible .
When the auditor’s questions have been answered and the audit is complete, ask whether there are any suggestions to improve the record keeping . Please remember that I have dealt only with organisations suited to ‘cash accounting’. Those organisations which need to adopt ‘accrual accounting’ – typically those with significant assets other than bank /deposit acounts or significant liabilities, or with annual revenues / expenditures over $50,000 – will need to consider use of a computerised ledger and preparation of lists of debtors and creditors at year end, and using an asset register. STEPHEN FOSTER
Chartered Accountant / Registered Company Auditor
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