Using a Finance Audit Checklist to Reduce Human Error

An internal or external audit is a thorough evaluation of a business’s financial records, conducted either internally or externally.

GFOA publishes checklists to assist reviewers in assessing compliance with generally accepted accounting principles (GAAP) and program policy, used by governments participating in its Certificate of Achievement program.

The Comprehensive General Purpose Checklist covers questions relevant to school districts and stand-in business type activity governments.

1. Review of Financial Statements
Utilising templates and audit preparation checklists, annual financial audits don’t need to be a painful ordeal; with the right team at hand, financial audits can provide an opportunity to strengthen internal controls and optimize processes.

If an independent auditor determines that a government report does not substantially comply with GAAP or program policies, he or she shall report this finding in a written management’s discussion and analysis report. Conversely, if no significant deficiencies exist in any government reporting package he or she should report this finding unqualifiedly.

Tracking fixed assets and accurately recording depreciation are crucial steps in combatting costly fraud and other misappropriations, as inaccurate records can make it easier for criminals to steal from an organization, as well as cause missed tax deductions. A financial audit checklist can help identify errors and minimize costly mistakes.

2. Review of Budgets
Budget is the plan for financing government operations and it should be comprehensive. It should provide an overall picture of how the government spends its funds, with votes cast by parliament as a whole (although some countries employ dual budget systems with separate development and recurrent estimates). Furthermore, any changes in economic conditions which might alter budgetary conditions should also be taken into consideration.

Unfortunately, GFOA has noticed that many of the principles for effective budget preparation in developing country governments are often disregarded. These include clear linkages between policies and expenditures; reasonable revenue projections; reasonable expense estimates; adequate procedures for analyzing policy options and prioritizing programs; as well as maintaining an appropriate balance between recurrent and capital spending.

There can be various factors contributing to these shortcomings, most commonly an inadequate awareness and capacity of macroeconomic analysis.

3. Review of Financial Policies
Financial audits ensure your organization abides by specific criteria that can have serious economic ramifications if they’re not met, making an internal audit system with checklists essential. Checklists have proven themselves invaluable for reducing human error as well as providing a standardized language for financial reporting across businesses worldwide.

Your financial audit should include an easy-to-read monitoring report that compares actual income and expenditures against the budget established at the start of the year, noting variances with meaningful explanations, including how you plan to rebalance it. Furthermore, this report should review significant fund transfers as well as long-term debt activity.

The Government Finance Officers Association (GFOA) publishes a checklist to assist governments participating in its Certificate of Excellence program in evaluating whether an annual comprehensive financial report meets both generally accepted accounting principles and program policies. While intended specifically for these governments, all GAAP governments can find these questions applicable.

4. Review of Internal Controls
Financial audit checklist reviews of internal controls are an integral component of an audit, helping ensure that an entity’s accounting system is operating as intended and that all relevant laws and regulations are being observed. They also serve to detect errors or discrepancies that might exist within the system.

Audits also assess whether an entity has implemented controls that provide reasonable assurance that its financial statements are free from material misstatement. To evaluate this, auditors use a top-down approach when selecting which controls to test; specifically starting at the financial statement level before working down to entity-level controls and then testing each for reasonable potential for misstatement of significant account balances, disclosures or relevant assertions.

Auditor must determine whether any roll-forward procedures are necessary by comparing existing written procedures with actual performs procedures to provide evidence of operating effectiveness of controls at interim dates.