Wednesday, July 7, 2010

Controlling Audit Fees

Wednesday, July 7, 2010
In these difficult economic times marked by decreases in donor contributions and public and private funding, non-profits, like other organizations, are looking closely at their expenses to determine ways to cut costs and save money. Accounting and audit fees are no exception.

Accounting firms, like other businesses, operate in a competitive environment, and should work with management to determine a reasonable fee for their services, while at the same time meet their quality control requirements under professional standards. In other words, quality shouldn't be sacrificed for price.

Management should be meeting or having conversations with their auditor at various times throughout the year, discussing their operations, changes in the accounting rules and regulations and their impact on the organization, as well as their financial status and related challenges. In the normal course of these meetings it would be appropriate to bring up the topic of fees and how they relate to the changes in the nature and operations of the entity. This shouldn't necessarily be a difficult conversation if you have a good working relationship with your auditor. Communication is the key to a good working relationship.

Now that you've broken the ice with your service provider, consider the following ideas that satisfy the needs and concerns of both the non-profit and the accounting firm that result in fees that are satisfactory to both sides:

• Have a Planning Meeting - Remember good communication? Meet with your auditor before the audit to establish a time-line for the audit, including timing of the deliverables (i.e. financial statements, tax returns), as well as meetings with the audit/finance committee or full Board of Directors.

A key discussion point at that meeting should be what financial/other information management will be providing, and when that information will be available to the auditor. Consider committing this to writing so everyone is clear on the information that will be "Prepared By Client" (often referred to as the "PBC" list). Some accounting firms include this information/list in their engagement letter.

• Get Audit Ready - Now that you know what you need to provide, do you have the internal resources and do you know what you need to do to get ready for the audit?

Consider an "internal" planning meeting similar to the one noted above to determine "who" in the organization is doing "what" for the audit. Review the trial balance in as much detail as necessary and determine what supporting information is needed and will be provided (and who in the organization is responsible for providing that information).

If you determine you don't have the necessary internal resources to provide the information promised, consider engaging the auditor for a special project, with a separate fee, to assist management in getting "audit ready". However, depending on the scope of services needed, there may be an issue with regard to auditor independence which may put the auditor in a position that prevents him/her from assisting the organization with this special project. For this or other reasons, management may also need to consider engaging the services of another service provider capable of performing these services for a reasonable fee.

• Get it Right - Now that you've determined "who" is doing "what" in the organization, make sure the information provided is complete and accurate. Supporting documentation/account reconciliations should be complete and provide enough detail to allow the auditor to understand what's in the account.

Make sure this information is accurate and that the supporting schedule/account reconciliation agrees with the amount in the trial balance. In situations where the trial balance has been "closed" and given to the auditor without the supporting documentation, you may need to provide the auditor with an accurate account reconciliation along with an adjusting journal entry to adjust the account in the trial balance to the accurate amount. In most cases this "PBC" client journal entry should not be considered an "audit adjustment" by the auditor in determining deficiencies or matters to be communicated to those in the organization charged with governance.

• What's New - Discuss with the auditor the changes in the organization since the last audit to assist the auditor in determining the scope of the audit and their assessment of the risk of material misstatements in the financial statements. While new items may surface that need to be addressed, the auditor may determine that time can be saved in other areas that have not changed or may have been assessed as having low risk based on the results of previous audits, as well as the auditors understanding of the current operations.

As part of the "ongoing communication" throughout the year, you and your auditor should be discussing new accounting and audit rules and regulations and their impact on the audit and related fees. Remember SAS 99 "Consideration of Fraud in a Financial Statement Audit" and the recent suite of "risk based audit standards" and their impact on the audits/fees? If not, you and your auditor are failing the test of good communication.

Working together as a team with frequent and ongoing communication, management and their auditor need to address the timing, scope, responsibilities, and deliverables in connection with the year-end audit. Such communication will provide the forum for discussion to determine reasonable fees for the services to be provided.

Need assistance? Contact us today.


Post a Comment

Nonprofit After Hours ◄Design by Pocket, BlogBulk Blogger Templates