The previous post provided a general overview of the importance of an audit but do you really understand what an audit actually achieves?

A common mistake made by treasurers and committee of management members is that once the audit is completed and everything appears to be in order, they believe it signifies there are no concerns relating to the financial operations of the organisation.  While that may be the case it is not always true. That’s why it’s important to understand what an audit actually achieves.

For an auditor to make their assessment they base their conclusion on a sample of transactions.  They certainly don’t check all transactions and they don’t examine all the internal controls, risk management systems or even whether all assets exist.

So, even though you may receive a clean audit report with no issues to address it does not guarantee that everything is in order.  For example, during an audit fraudulent activity might be identified but the it is not the purpose of the audit to specifically find fraudulent activity.

As a treasurer or committee of management member, if you have concerns then you may ask the auditor to focus on more specific areas.

Another outcome of the audit is to provide an independent opinion on the accuracy of the financial reports that have been prepared.  This will usually relate to the profit and loss statement, balance sheet, cash flow statement and any other financial reports that have been prepared.

These financial statements also need to be interpreted in conjunction with any notes that form part of the financial reports.

Furthermore, the audit opinion will comment about compliance with any reporting requirements including accounting standards or any other financial reporting requirements.

As can be seen, even though the audit report indicates that the financial operations of your organisation are in order it does not necessarily mean there are no issues.  It remains the responsibility of each committee of management member to ensure the financial viability of the organisation occurs.

The next post will examine how to get the most out of an audit.