In accordance with the Associations Incorporation Reform Act 2012, an incorporated association requires an audit if their total revenue is greater than $1 million per annum. In order for an audit to run smoothly planning is essential. There are five key areas your organisation should consider when preparing for an audit.

1. Risk Assessment

Management should complete a risk assessment of the organisation for both financial and business risks. This assessment should be reviewed and updated annually if required.

The CFO should identify if there’s a risk of material misstatements within the financial statements, or any activities that may be considered fraudulent, and ensure that relevant safeguards and internal controls are implemented. This assessment should be disclosed to the auditor prior to the audit commencing.

2. New accounting standards

Each year the Australian Accounting Standards Board (AASB) releases new and amended accounting standards. It’s your organisation’s management team’s responsibility to review the new standards, which are effective at the end of the year. The management team needs to determine the impact they will have on the financial statements regarding accounting treatment and disclosure.

If the new standard results in an adjustment, the CFO must quantify the effect on the financial statements and accordingly allow for adjustments if required.

If additional disclosures are required in the financial statements the CFO should compile all the relevant information for the auditor prior to the audit commencing.

3. Prior year’s management report

The CFO should review the prior year’s management report to review any errors and problems reported in the previous year ensuring any recommendations made were implemented during the year.

Audit adjustments made in the prior year should be reviewed to ensure the same errors don’t occur again.

4. Cut-off

It’s vital for a CFO to allow adequate time for cut-off to ensure that all relevant and material transactions are captured in the correct accounting period. This will also ensure that minimum audit adjustments are required during the audit.

The CFO should set realistic deadlines and cut-off dates for the accounting staff by reviewing historical cut-off dates and determining how adequate these dates were. If the number of audit adjustments in the prior year were high, the management may need to extend the cut-off period.

5. Audit file

Once cut-off has been completed and the CFO is confident that all material transactions have been captured, balance sheet items should be reconciled. These reconciliations should be reviewed and authorised by the CFO ensuring that evidence of this authorisation is clearly documented on the reconciliations.

It’s advisable to provide a soft copy of the trial balance/general ledger followed by an audit file to the auditors on the first day of the audit. Original third-party documentation to back up the balance sheet reconciliations should be placed on the audit file for the auditor to copy if required.

Implementing the above points in the months leading up to the audit will help ensure that the CFO is prepared for the audit and that it’s completed in an efficient manner aiding both parties to meet deadlines. It’s highly recommended that a meeting with the auditors be held prior to the balance date to discuss all of the above, management’s timeline schedule and any significant audit or accounting issues that may have arisen.