The purpose of this blog is to help you with the process of changing auditors or external accountants.
To begin, the bylaws of your association[1] will state if an annual audit is required or if the annual review of financial statements can be conducted by an external accountant. Compliance with this requirement is obviously mandatory but does it go far enough? Before we answer this question let’s take a look at what the various levels of reporting include.
Differences in Work Done by an Auditor and an External Accountant
All financial statements prepared by an accounting professional are not the same:
- Audit: financial statements are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) for not-for-profit organizations
- The auditor will state in the Independent Auditors’ Report if the statements are reasonable, i.e. “present fairly, in all material respects, the financial position” of your association
- Review Engagement: financial statements are prepared in accordance with the GAPP for review engagements for not-for-profit organizations and, ”consisted primarily of inquiry, analytical procedures and discussion related to information supplied by the association”
The external accountant will state in the Review Engagement Report if the statements are probable, i.e. “A review does not constitute an audit and, the external accountant does not express an audit opinion on these financial statements”
- Notice to Reader: the external accountant “compiles and makes no representation of any kind to any other person in respect of these financial statements and accepts no responsibility for their use by any other person,” i.e. the external accountant has performed neither an audit nor a review engagement on these financial statements and, accordingly, “…expresses no assurance thereon”
As a member of the Association Management Company (AMC) Institute, Strauss recommends that all of its clients’ financial statements be audited. At a minimum, a Review Engagement is required—we do not offer association management services to an organization that retains an external accountant on a Notice to Reader basis.
Unqualified vs. Qualified Financial Reports
An Auditors’ Report or a Review Engagement Report of a not-for-profit organization may be either unqualified or qualified:
- An unqualified report will state “…nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with Canadian Accounting Standards for Not-for-Profit Organizations”
- Some reports for not-for-profit organizations are qualified because of the nature of the source(s) of revenue by stating, “In common with many not-for-profit organizations, the Board derives revenue from membership fees, donations, etc. the completeness of which is not susceptible to satisfactory audit verification”“Accordingly, the verification of these revenues was limited to amounts recorded in the records of the Board and we were not able to determine whether any adjustments might be necessary to revenues, excess of expenditures over revenues, assets, and net assets”
- Audit Reports and Review Engagement Reports that are qualified for other reasons other than noted above are beyond the scope of this article
At the Annual General Meeting (AGM), the members[2] of your association appoint either an auditor or an external accountant for the coming year. Changing the firm appointed at the AGM requires a Special Meeting of the Members, i.e. the Board cannot make this change on its own.
Request for Quotations (RFQ) for Accounting Services
When going to the market for a new accounting services supplier the most efficient way to get the best responses from the best potential suppliers is to be specific and clear about what you require and to be specific and clear about how you will evaluate vendors that submit a quote. The following information is typical of what we provide in an RFQ for accounting services.
Background
- An overview of the association and its operating and governance model
- A statement detailing the reasons for the RFQ and identifying the three to five prequalified firms being asked to submit a brief response
As well, if there are legitimate reasons for doing so you may want to advertise the RFQ more broadly but note that your goal should not be to get many responses – just a few good onesAttracting too many submissions is a sign that you have not defined what you are buying specifically enough and also incurs significant assessment cost to review all the submissions fairly
Scope and Details of the Required Services
- Brief description of the nature and complexity of the work to be done
- List of deliverables each year (typically either a Registered Charity Information Return (form T3010) or a Corporate Tax Return (T2))
- Identifying special requirements and/or needs that may require more time than is “normal” or may be unique to your association
- List of the information to be provided to the auditor or external accountant by your association and the approximate date upon which they can expect to receive them
- Copy of the prior year’s financial statements, trial balance, and adjusting journal entries prepared by the auditor or external accountant
- Date draft financial statements are required, as the fee may be lower during non-peak periods (e.g. firms are much busier with December 31st year ends than with June 30th year ends)
- Current budget for accounting services
- Statement that your association will not be:
-Liable, if for any reason as a result of the rejection or withdrawal of any submission and/or the cancellation of the RFQ
-In any way be responsible for any costs incurred in the preparation of a submission
Required Components of the Vendor Response
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- Responses more than five pages will be rejected
- An overview of the firm and identification of the experience and expertise the firm has providing (i) similar services to (ii) associations, and (iii) familiarity with the sector the association serves (for example, engineering, healthcare, etc.)This overview should include a list of the staff proposed to provide the services (i.e., brief bios, years of experience, and experience in similar work with not-for-profits, manager, and partner to be involved), and their related experience
- Expected fees, expenses, charges, and any other costs—including extra costs, if any, for the first year and the following three yearsIf a qualified opinion, because of the source(s) of revenue is acceptable to your association’s members, then the cost of both options can be requestedThe following is a matrix we often include in an RFQ for accounting services, detailing the total fees and estimated expenses:
- A statement accepting all of the RFQ’s terms and conditions
Selection Process Details
- When the proposal is due
- To whom questions should be addressed (note that questions and answers should be shared among respondents)
- Next steps and timeline
- Proposal Evaluation Process
- Based on the RFQs submitted, the selection committee shall select one or two to interview and, based on their evaluation of the relevant expertise providing accounting services to similar associations in similar sectors, will select the most qualified with which to negotiate an agreement (subject to the submission of three acceptable references)The successful firm will then submit a contract in writing, detailing the terms agreed upon in the negotiation
If you have any questions related to financial management or have suggestions for an upcoming article, then please feel free to email me at mhs@strauss.ca.
The above is provided for informational purposes only. It constitutes general information relating the role of a volunteer treasurer. It does not constitute legal, tax, accounting, or other professional advice and you may not rely on it as such.
[1] The words “association” and “organization” are used interchangeably to describe not-for-profits.
[2] For-profit organizations are typically owned by shareholders; not-for-profits are owned by its “members”. Your organization’s bylaws will define who is a member.