Financial Audit

Introduction

A financial audit is a process for examining an organisation’s financial situation to ensure financial compliance and transparency. In most countries regular audits by an external auditor are required by law.

Why

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This toolkit is helpful for your organisation when:

• it needs to audit its finances at the end of the year to meet legal requirements and if sufficient control mechanisms are in place.
• it wants to demonstrate transparency and accountability.

What you can expect

In six steps this toolkit will support you to find the best way to approach a  financial audit for your organisation. Here you’ll find a step-by-step guide, tools, examples and other resources for approaching your financial audit.

Step 1: Planning

• Identify who will be responsible for the audit. Nominate one or two persons in the organisation who will support an external auditor through the whole process. The person should be very familiar with the financial documents of the organisation.
• Select an audit firm and negotiate an agreement with the auditor.
• Watch this webinar to better understand and read audited financial statements:

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Step 2: Preparation

• Gather all financial documents such as invoices, receipts and bank statements and put them together in an organised manner.
• Ensure that information is available as quickly as possible to your auditor.
• Review the current record keeping practices and improve them if you identify gaps and/or if there are documents missing. Having all financial documents and information stored and readily accessible will save you lots of time in future if you need to solve an issue.

Step 3: Cross-Check

• Make sure everything is entered into a computerised accounting system.
• Cross-check each part of your system for errors etc.
• Review all your entries in your system and make sure that there is a physical backup document for each entry available. It is recommended that you do such checks on a regular basis during the year, rather than just before the audit at the year end.

Step 4: Pre-Audit meeting

• Meet with the auditor(s) before to create a timeline on when which documents will be required. This meeting is a platform to address and clarify any other issues to ensure a smooth audit.
• Set a date for the audit.

Step 5: Audit

• Make sure that during the audit the person nominated responsible is present all the time and not caught up in other activities. It is important that she/he is accessible whenever her/his support is needed.

Step 6: Review of Report

• Have the leader of the organisation review the draft that the auditor made and let them ask about findings and evaluate recommendations before it is presented to the board.
• Have the insights gained through the audit presented by the auditor in writing or in-person to the board of trustees.
• Evaluate the auditor’s performance and discuss if you want to engage the same person(s) in the future.

Key To Success

• Preparing well in advance by organising all financial records and other documents will save you lots of time and money.
• Be up-to-date, accurate and organised!
• Make your audit report public in your annual report and on your website to demonstrate a commitment to transparency and accountability.

Challenges

• Organisations may not have time for proper regular record keeping throughout the year and a lot of time can be required to retroactively gather all financial documents.
• Some required documents might be missing.