Volunteer Board leaders have a fiduciary duty to ensure the financial health and compliance of their associations. Engaging with external auditors is a critical part of this responsibility.
Below is look at ten questions to ask during the review of audited financial statements, providing a deeper understanding along with actionable insights.
1. Can You Explain the Audit Process?
Understanding the audit’s scope is key and should be the first step. Request the auditor to detail the methodologies used, the areas of the financial statements that were focused on, and why. This explanation should include how the audit adheres to Canadian Auditing Standards (CAS) and how these standards impact the findings.
2. Were There Any Changes in Accounting Policies?
Accounting policies form the backbone of financial reporting. Any change can significantly alter the financial statement’s appearance and comparability over time. Ask for specifics about the nature of these changes, the rationale behind them, and how they align with or diverge from industry standards and generally accepted accounting principles (GAAP).
3. Did You Identify Any Areas of Concern?
This question goes beyond identifying problems; it’s about understanding their scale and root causes. Whether it’s about liquidity issues, questionable transactions, or internal control weaknesses, knowing these concerns in detail helps in crafting the targeted corrective actions
4. How Would You Assess Our Financial Health?
While auditors might hesitate to give a broad judgment, they can provide insights into key indicators of financial health such as liquidity ratios, debt levels, and reserve funds. This question can lead to a discussion about financial resilience and sustainability strategies. A thorough discussion around each issue will help ensure that appropriate strategies are implemented to mitigate risks effectively.
5. Were There Any Adjustments Made to the Financial Statements?
Adjustments are a direct reflection of the audit findings. Delve into the specifics of each adjustment, including how they were identified and the impact on the financial statements. This discussion can reveal areas for improvement in the organization’s accounting practices and internal controls.
6. How Can We Improve Our Financial Reporting and Controls?
Auditors often have recommendations for enhancing financial reporting accuracy and the effectiveness of internal controls. Ask for both general advice and specific suggestions tailored to your organization’s size, complexity, and sector.
7. Is Our Organization Compliant with Relevant Laws and Regulations?
Compliance is multifaceted, covering tax obligations, regulatory filings, and adherence to financial reporting standards. Request detailed feedback on compliance areas, potential vulnerabilities, and recommendations for ensuring ongoing compliance.
8. Were There Any Difficulties Encountered During the Audit?
Understanding challenges faced by the auditors can highlight internal areas needing improvement, such as record-keeping, accessibility of information, or communication gaps. This question can lead to strategies for a more efficient audit process in the future.
9. What Is Your Opinion on Our Cash Flow and Fund Management?
Cash flow and fund management are critical for operational viability. Ask the auditor for an analysis of cash flow patterns, fund allocation efficiency, and suggestions for optimizing cash management practices to support the organization’s goals and obligations.
10. Can You Provide Best Practices for Financial Management Specific to Our Organization?
Every organization has unique aspects that affect its financial management. Tailored advice can cover a range of topics, from budgeting and forecasting to investments and reserves management. This guidance can be invaluable in strengthening financial governance and strategic planning.
Check out my colleague, Pamela E. Forsyth’s insightful article on understanding accounting to better manager your association.
Another insightful read from Pamela is about the six bad habits an association should avoid accounting-wise.
Conclusion
These detailed questions are designed to foster a comprehensive understanding of the audited financial statements and the underlying financial health of the association. By engaging deeply with auditors, volunteer Board leaders can ensure they fulfill their fiduciary responsibilities, address potential issues proactively, and guide their organizations toward financial stability and compliance.
The goal is not just to review the numbers but to understand the story they tell about the organization’s past, present, and future financial trajectory.