John Selwood's Q&As
John addresses some questions on communicating with those charged with governance.
Q) I am an accountant for a charity with income of under £2m where the trustees have no direct involvement in the preparation of the accounts or the audit. I recently received a 22-page Audit Plan from our auditors in advance of their visit and was asked to pass this on to the trustees. Is this considered to be a compliant application of auditing standards? It seems disproportionate and an ineffective way of communicating important points to those charged with governance.
A) The nature and extent of the auditors’ communication with those charged with governance will vary enormously from audit to audit. However, in this case, the amount of written communication does, at first sight, seem excessive.
The International Standards on Auditing (ISAs) do require written communications at the beginning of the audit. As a minimum, auditors can include the basics in the engagement letter, such as respective responsibilities, how the audit is conducted etc. Additional written communications are sometimes put in a simple ‘scoping letter’. At the other end of the spectrum I have seen reports to those charged with governance approaching 100 pages long.
It may be a cliché to say that the right approach for each audit is down to the auditors’ judgement, but this doesn’t make it any less true. Your client receiving a 22-page audit plan is not a commentary on overly onerous auditing standards. The auditors did not need to produce it, they chose to. Perhaps they thought that the trustees would benefit from this amount of detail? You say that the trustees have no direct involvement in the accounts preparation process; the auditors might be trying to remind the trustees of their obligations to take responsibility for the financial statements.
Interestingly, I have seen a trend for the auditors of not-for-profit entities to produce more formal communications. This reflects the more sophisticated methods of corporate governance that this sector expects and aspires to, even for comparatively small organisations. Auditors sometimes automatically produce a report which is the ‘whole enchilada’ as a matter of course, because they believe that trustees should take an interest in that level of detail.
More worryingly, these long communications sometimes include page after page of boilerplate communication on future changes to legislation and accounting standards. The auditors may be well intentioned, but sometimes these generalisations are ignored by trustees when more appropriate recommendations that are specific to the entity would not have been.
Your question also reminds me of the need for auditors to consider oral, face-to-face communication with the trustees. In many cases this can be much more effective than communicating in writing. There needs to be a dialogue between the trustees and the auditors, before the audit, in any event. This could be used as the basis for further communications either replacing or explaining possibly extensive written communications.
In conclusion, if the trustees of the charity think that the auditor’s communications could be more useful and direct, then they should say so. The ISAs do require two-way communication with the client, after all.
This is an extract from an article in the July/August 2015 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.
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