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How to evaluate your external auditor

For many non-profit organisations, the annual external audit is currently in progress or may be complete. Don’t forget to take a little time to assess the audit process, including your organisation’s contribution. This should lead to improvement in the quality, cost and efficiency of future audits.

The organisation’s contribution to an audit process can have a significant effect on the audit process, including the time required and therefore the resulting audit fees. An organisation should obtain feedback from the auditor on how the auditor perceived the organisation’s participation in the process. However, below we focus solely on how to evaluate the external auditor.

An assessment of the auditor should ideally be carried out by the audit or finance committee of the governing body or board but, if the organisation does not have such a committee, the management team should carry out the review and report their findings to the board. The review will not only inform the decision as to who is appointed to undertake the audit for the next financial year but also, if it includes constructive feedback to the auditor, should lead to improvement in the quality, cost and efficiency of the audit in future years.

We believe that the evaluation should encompass:

  • Quality and degree of communication with the organisation – in addition to good communication during the entire audit cycle with staff, regular, open and sensitive communication between the audit or finance committee and the auditor is essential for proper oversight of the organisation’s financial reporting process. This should include a focus on the key accounting or auditing issues that, in the auditor’s judgment, give rise to a greater risk of material misstatement of the financial statements, and on any questions or concerns that the finance committee or management has. This usually takes the form of an upfront meeting prior to the audit with the finance or audit committee, and a post-audit meeting prior to the signing of the annual financial statements by the board.

  • External auditor’s independence, objectivity, and professional scepticism - this could include the consideration of rotation of the audit partner or even the audit firm, whether this is required by legislation or not.

  • Engagement team’s skill and responsiveness.

  • NPO-specific knowledge and experience of the audit team and their ability to access specialised expertise if required during the audit.

  • Level of resourcing of the audit team in order to ensure the audit was completed thoroughly, efficiently and on time.

  • Commitment of the lead audit engagement partner to the leadership of the audit, including the setting and discussion of the audit plan, the identification of key risks and the response to the way the organisation’s management has addressed the key risks faced by the organisation.

  • Reasonability of the scope, time taken and cost of the audit in relation to the complexity and risks faced by the organisation, especially the communication of any changes to these.

  • It is particularly important to consider, in the event of significant differences in views between management and the auditor, to consider how these were addressed.

We hope that you find the suggestions above to be helpful. We have chosen, without regrets, to not register as auditors ourselves, but do feel free to contact us with any issues regarding your annual financial statements, including preparation for a financial year-end and audit.

Ziyo | Accountants with heart

The Ziyo team is led by Chartered Accountants and includes accountants, bookkeepers and support staff. They have served the nonprofit sector for over 25 years, helping organisations to build financial health and sustainability so that their resources can be used more effectively in making a real difference. Email This email address is being protected from spambots. You need JavaScript enabled to view it.

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