This Internal Control Tip covers the relationship between CFO and Auditor.
To the CFO and the accounting team, an audit certainly feels like a test. Being graded is rarely fun but you take it in stride. Your entire team has worked hard to process and reconcile financial transactions all year, and then an auditor comes in to tell you what is wrong. But it does not have to feel like your accounting department is trying to pass a difficult final exam.
The key to creating a collegial, productive relationship between the accounting team and the auditor is to recognize that each plays a different role and has a different objective:
- The CFO and accounting team are responsible for processing and reporting financial transactions
- The audit team is responsible for validating what is reported, based on how transactions were processed and recorded
Data comes into the accounting department from many different sources in your district, and your team has to make sense of it all. You must aggregate data, reconcile transactions and tie transactions back to balances of significant accounts. Each transaction makes a journey from initiation through authorization to reporting, and that journey is what the auditor must validate.
Beyond the accuracy of the balances, the auditor’s task is to validate how internal controls were designed, how consistently they were followed, and how well they worked to establish the necessary level of certainty over management’s assertions.
Begin with Trust
You trust your accounting team and district colleagues, and you know how much work went into processing and documenting tens of thousands of transactions last year. And it may feel like the auditor does not recognize the level of effort everyone put in.
However, in validating data, the auditors must walk a fine line of recognizing the CFO’s and team’s competence while using empirical evidence to document the completeness and accuracy of the data. Auditors are tasked with gathering documentation to demonstrate that the data has been validated from its source, analyzed, reconciled and reported accurately and completely.
The relationship between the CFO and the auditor is usually very good when it starts from a point of mutual respect and collaboration. Auditors must be careful to seek documentation without seeming to be accusatory. They are looking for internal controls and consistent execution for the initiation, recording, reconciliation and reporting of financial transactions. It is natural to feel defensive when the audit team comes seeking proof and documentation, or asking about missing control steps, but remember, it is not personal. Auditors should be tactful, and district accounting teams can help by remembering that the audit is about processes, not people.
The Price of Complexity
Modern accounting departments rely on multiple, disjointed systems to process and record transactions. As that complexity increases, so does reliance on comprehensive, well-designed, well-maintained internal controls, from segregation of duties to user access controls to accounts payable reconciliations. And that is what the auditors are there to verify.
A little trust goes a long way in building a productive CFO-auditor relationship. Remember that you have different but complementary objectives, but you both share the goal of improving the district’s financial processes, accuracy and reliability.
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