2016 a year in review for audit

With the end of another year, we have taken the time to look back at some of the common issues our audit team has come across in 2016.


Statement of cash flows

This year has been the first year for many Tier 3 charities who have been required to prepare a statement of cash flows. It is important to remember that this statement only records cash transactions, so transactions like depreciation, loss on sale or unrealised foreign exchange gains cannot be included. The cash and bank figure in the reconciliation should be the same as that which is shown in the Statement of Financial Position.


Use or return grants – Tier 3 not for profits

With the new financial reporting standard, charities must consider whether grants that they have received are on a use or return basis. That is, if you don’t spend all the grant, do you have to return the unused portion or can you keep it.

In some cases, we noted funding received from groups that carried a ‘use or return’ clause were not initially recorded as liabilities. These have subsequently needed to be adjusted.

PBE SFR-A (NFP) standard clause A65 states “Where revenue has conditions attached, it is necessary to determine whether those conditions lead to a liability. Revenue that has a ‘use or return’ condition, shall initially be recorded as a liability until the condition has been met, at which point the revenue shall then be recorded.” We recommend that a register is kept to record all funding contracts that carry an explicit ‘use or return’ condition. This will then assist with the identification of the year end liability.


GST reconciliations

Despite all best intentions sometimes the GST account in the general ledger doesn’t reconcile to the GST return at balance date. We find that this is commonly from either transactions being incorrectly recorded in the ledger or transactions being missed from the GST return. To solve the issue, prepare a GST reconciliation each time a GST return is prepared to ensure everything is captured correctly. Also, ensure care is taken when processing transactions into the ledger to ensure they are recorded at the correct time.

We recommend that you align your GST return period with your balance date, as it is a much simpler process to reconcile GST at year end when your GST return date is the same as your balance date.


Authorisation of expenditure

As auditors, we like to see that expenditure has been appropriately approved; this is usually by a signature appearing on an invoice or on a schedule of payments made for the month. This is an important internal control procedure as it shows that someone has considered the reasonableness of the expenditure and it provides accountability inside the organisation. For smaller organisations, we encourage the governing body to review the month’s expenditure and document this in the minutes as well.


Spreadsheet issues

The use of Microsoft Excel is common in many organisations today. It is commonly used to produce monthly schedules, journals and reconciliations. We have found instances where a previous month’s spreadsheet has been overwritten with the next months, thus eliminating the audit trail or electronic data record. To prevent accidentally over-writing important spreadsheets (such as monthly reconciliations), save your files as read-only once they are completed.

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