Audit and Assurance

 

What is an audit?

 

The term ‘audit’ has a specific meaning in accounting terms. An audit is designed to provide a high, but not absolute, level of assurance that the information subject to audit is free from material misstatement. Thus, an audit may be requested for financial statements in order to enhance the degree of confidence that intended users have in the financial statements.

 

Another assurance service available is a review. This is a limited assurance engagement designed to provide a moderate level of assurance on the subject matter. This limited assurance is expressed negatively as the reviewer reports that "nothing has come to my attention that causes me to believe the financial statements do not present a true and fair view of various matters".

 

A member of the Institute of Chartered Accountants may also undertake a compilation of financial information. In this type of engagement a member uses their professional expertise to compile financial information from data provided to them. In such an engagement the member does not express any opinion on the compiled information.

 

An agreed-upon procedures engagement may also be requested. In this type of engagement a member of the Institute is requested to perform specific procedures with respect to financial information and report on the factual findings resulting from the procedures.

 

These options are also outlined in the December 2007 article in New Dialogue (the Magazine of the New Zealand Federation of Voluntary Welfare Organisations).

 

In this section

 

• How do you benefit from an audit?
• Audit and finance committees
• Keeping your auditor happy
• Ready to sign your financial statements?
• Am I qualified to audit a NFP?
• Appointing an auditor

 

Resources:

 

"Information for funding providers" (119 KB)

"Information for not-for-profit organisations" (117 KB)

 

Audit

An audit is an engagement:

 

• where an independent expert, the auditor, provides an opinion on “a matter of accountability” (the subject matter).
• where the “matter of accountability” is the responsibility of someone else (usually the management of the entity.
• which is designed to provide a high, but not absolute, level of assurance on the subject matter.

 

Review

A review engagement is designed to give the reader of financial statements limited assurance on the information.

 

• It is an independent examination of information
• It requires enquiry and analytical procedures to assess the information
• The reviewer needs to have a level of knowledge of the organisation in order to be able to identify the events and transactions that may have a significant effect on the financial statements
• A review provides a moderate level of assurance on the subject matter

 

Other services

Compilation engagements

A member of the Institute of Chartered Accountants may compile the financial statements. Although this would not provide the assurance of an audit or review, this service can be beneficial when members use their professional competence to ensure the statements are appropriate in form and free from obviously material misstatement.

 

Agreed-Upon Procedures engagement

A member of the Institute of Chartered Accountants can be engaged to perform specified procedures and report the factual findings (As agreed with you, I did xxx and found yyy).  For example, this may help a funder obtain specific information about the spending of grant monies.

 

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