3. Auditing accounts

The Act does not require accounts to be audited, but the association itself may require an audit to be carried out. This requirement would normally be specified in the rules of the association. It would be within the power of the members to pass a resolution that the accounts for a particular financial year be audited, especially if they had any reason to be concerned. Funding body agreements might also require the association's accounts to be audited to ensure that the funds provided are used according to the funding agreement and for the purpose stated in the agreement.

Consideration is being given to requiring certain associations to have their annual financial statements audited or examined by a bookkeeper. The extent of the audit requirement would probably depend upon the extent of the association's financial transactions and assets. There would also be some flexibility given in regard to the qualifications required of an auditor.

3.1 Reasons for auditing

It may seem like additional time, effort and expense to have an annual audit, but there are a number of reasons why an association (or a funding body) would require records to be audited:

• an audit of the financial records of the association ensures greater accountability to the members (and for some associations, the public);
• the audit gives assurance that all funds received by the organisation have been correctly collected, documented and banked. It shows that all monies spent by the organisation were for the purpose of the association, approved by the management committee, and documented. Apart from anything else, this helps to protect management committee members against unfounded allegations of misconduct;
• the audit provides an account of the assets of the association and verifies that records and registers are properly maintained;
• the audit functions as a check and balance. It requires that the financial statements of the association be kept to a standard in order for the audit to occur and will indicate areas that may require improvement;
• audited financial statements are required if the association has charitable status; and
• funding bodies often require audited financial statements.

3.2 The role of the auditor

The purpose of an audit is to enable an auditor to express a professional and independent opinion on the financial statements of the association. It is the responsibility of the management committee to provide the financial statements.

It is not the task of the auditor to find all errors or fraud, therefore the management committee cannot rely on the auditor's work as a substitute for the performance of their own duties. Every member of the committee must pay close attention to the association's financial statements at all times.

The auditor will, on the basis of the financial statements, take reasonable steps to ensure that:

• the accounting records of the association are adequate to prepare the financial statements;
• the financial statements are reliable;
• the results for the period are demonstrated in the financial statements; and
• the association's state of affairs for the period are disclosed.

The auditor's task is to provide a professional opinion on the state of the financial affairs of the association, and auditors have a legal responsibility for their opinion. They can be held liable for negligence if the audit is not completed according to professional standards, or for damage to the association as a result of negligence.

3.3 Appointing an auditor

When appointing an auditor, a good place to start is by word of mouth by simply asking other associations whom they use. If using a professional auditor, check their registration status. Accountants who are members of the Institute of Chartered Accountants or the Australian Society of Certified Practising Accountants are required to meet the auditing standards set out by these professional bodies.

Ask for a letter of engagement from the person selected as auditor setting out:

• what their responsibilities are;
• what they will require to undertake the task (ie ask them to list what they require);
• what it will cost; and
• what the expected time frame is for completion.

This ensures that there is a clear understanding of the duties and responsibilities of the auditor.

To deal with any problem, ensure that the auditor has the contact details of the treasurer and at least one other committee member so that, if the treasurer can't be contacted, someone else can. Although the treasurer usually has responsibility for overseeing the financial statements, this is not his or her responsibility alone. Whilst the treasurer should be able to provide the auditor with additional financial information if required, the responsibility can be shared among other members.

The manner of appointment of an auditor may depend on the association's rules. It is common for the auditor to be appointed for the following year at the AGM. This appointment is most commonly made on the strength of a recommendation from the management committee.

To ensure that the auditor does not have the potential for conflict of interest, appoint an auditor who is at ‘arms length' to the association. Do not appoint an auditor for the association who is:

• a past or present member of the management committee;
• a member of the association;
• an employee, supplier of goods or services or a servant of the association; or
• an employer, partner or family member of a member of the association's management committee.