How To Avoid Qualifications In Your Future Audit Reports

Audit reports are designed to improve the competitive potential of a small business enterprise.

Audit qualification is an accounting term used by auditors to demonstrate material failure or non compliance of financial information against a set objective.

This page will show you how an accountant can perform a project audit for your small business, given an objective of securing more, or approving existing funds by investors or donors.

An accountant can write audit reports which identify weaknesses and solutions to your accounting control systems, weaknesses and threats facing the future of your business, advises you on future opportunities and strength to help with the transformation of your business.

Self Check

In this scenario, we are going to assume that your business runs a senior citizens sports program which is funded annually by grants from a Golfers Lottery Club (GLC 2000).

In order to qualify for more funds, the club has given you certain operational conditions and terms whose compliance rate should not go below 80%.

The club hires an independent accountant to write audit reports annually, through which he advises them about the rate of your compliance. The club then uses this report and any other criteria to decide whether or not to continue funding you.

Understanding how audit reports can make or break your business will take you a long way by helping to improve your compliance rate.

The Senior Citizens Funding Program

Auditor’s Terms of Reference As per Donor’s Expectations

1) Check that:

1. Items and amount claimed are in accordance with the offer letter and the terms and conditions of the offer letter (and supplemental offer letters, if any).
2. Items claimed are used for the project as stated in the offer letter, unless otherwise stated.
3. Audit to ensure Items claimed by the company are accurately recorded in all the claim forms and schedules, and in accordance with the books and records maintained by the company.
4. Description and authenticity of items claimed are valid by agreeing to appropriate source documents and other records.
5. Claims agree to the appropriate source documents, e.g. invoices, personnel and payroll records, etc.
6. Claims are made only upon disbursement of cash by the grant recipient, and do not include those that are purely accounting entries without cash outlays (e.g. accruals, depreciation).
7. Audit reports must confirm that all items claimed are incurred and paid within the qualifying period as per the terms and conditions of the offer letter (and supplement offer letters, if any).
   Exception:
   For final claims, items claimed may be paid after the qualifying period, but before date of audit report.
8. Equipment claimed exists through physical sighting at the date of visit and are installed/operating as stipulated in the grant.

The Audit report should confirm that the items listed above from (i) to (viii) should cover at least 80% of the value claimed in the statement.

1. Check that item categories that prohibit related party transactions do not include related party claims.
2. Enquire and report on any sale/lease/disposal of the equipment, if applicable, that is funded by EDB during the execution of the project.
3. The auditors shall highlight any going concern issues raised in the latest audit reports of the company.
4. In the event that there are errors and deviations found, the auditors shall report accordingly and provide details.

You may find it necessary to ask your accountant to check and make an audit report similar to the donor’s expectation before submitting to the independent auditor, as per the following scenario.

A Scenario of Final Findings in Audit Reports

To:

The Managing Director
Senior Citizens Welfare Ltd

We have performed the procedures in accordance with the Terms of Reference on the Statement of Expenditure incurred by Senior Citizens Welfare Ltd.

This is in connection with the development of (the senior citizens sports program) under the (the senior citizens support program) of the Golfers Lottery Club 2000(“GLC”) for the qualifying period from (1-11-05) to (31-12-06).

Our engagement was undertaken in accordance with the International standard on related party Services IAS 24.

The procedures were performed solely for the purpose of the Company's submission of the aforementioned Statement of Expenditure to GLC.

The procedures were in accordance with the terms and conditions specified by the GLC in its Offer Letter dated 15-7-2005 (and Supplemental Offer Letter dated 10-10-05) subject to verification through independent audit reports.

With reference to item 1 of the Terms of Reference, we have ensured that such procedures cover at least 90% of the value claimed in the statement.

We report our findings below:

1. With respect to item 1 of the Terms of Reference, we found no exceptions from performing the procedures (i) to (viii).
2. With respect to item A of the Terms of Reference, based on related parties identified by the (SCW Ltd) and as represented to us, we found that related party claims are excluded from item categories that prohibit related party transactions.
3. With respect to item B of the Terms of Reference, we have inquired and are not aware of any sale/lease/disposal of equipment that is funded by EDB during the execution of the project.
4. With respect to item C of the Terms of Reference, we confirm that there is no going concern matter included in the latest audit report of the company.
5. With respect to item D of the Terms of Reference, we confirm that total errors and deviations were 0.5% of budgeted expenditure and are not considered material to affect the opinion in our audit reports.

Our report is solely for the purpose set forth in the second paragraph of this report and for your information, and is not to be used for any other purpose or to be distributed to any other parties other than GLC. This report relates only to the accounts and items specified above and do not extend to any financial statements or audit reports of SCW Ltd, taken as a whole.

Your
Chartered Accountants

(21-03/07)

Please do not hesitate tocontact us, for more on this subject, we shall be glad to help you with a tailored solution along the wider subject of audit reports.

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