Dutch Caribbean Nature Alliance (DCNA)

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1 Dutch Caribbean Nature Alliance (DCNA) Approach to the audit process and best practices Page 1

2 Welcome Opening remarks Logistics Learning objectives Agenda Page 2

3 Learning objectives Upon completion of this course, you will be able to: Understand why you go through the audit process yearly Recognize the importance of planning and execution of the audit Recognize and understand key audit features Identify requested supporting documents by the auditors How to deal with complex audit issue in bookkeeping Importance of good communication between auditors and clients The importance of management to implement and discuss management letter recommendations. How the overall organization grow by the contribution of every individual Page 3

4 Agenda Why do we audit? The audit process PBC (Prepared By Client) Accounting Best Practices Important accounts and how audited Audit adjustments and compilation of Financial statements Audit opinion and management letter Management responsibilities Page 4

5 Ice Breaker Page 5

6 Why do we audit? Page 6

7 Why do we audit? (continued) An audit is an independent examination of a company's accounts and financial records, leading to a report on the company's financial statements to help management, shareholders, investors and others in their use of the financial statements. Page 7

8 Why do we audit? (continued) Required by BZV (Upon Secretarial Level) Trust Fund Required by Local government (Aruba, Bonaire, Curacao, St. Maartin. St. Eustatuis and Saba) Required by other organisation (e.g. Stichting Doen, MINA and WNF) Page 8

9 Audit process Page 9

10 Audit process Type of audit Audit approach Engagement letter Agree timeline with all parks Send PBC (Prepare By Client) Audit of PBC and Financial Statement LOR / To be signed by Management Conclude in the form of opinion Provide recommendation in the form of a management letter Page 10

11 Type of audit? Page 11

12 Type of audit Financial Audits Operational Audits Department Audits Information Systems Audits Integrated Audits Investigative Audits or Reviews Page 12

13 Audit approach Control base approach Substantive approach Page 13

14 Engagement letter An engagement letter defines the legal relationship (or engagement) between a professional firm (accountancy firm) and its client(s). This letter states the terms and conditions of the engagement, principally addressing the scope of the engagement and the terms of compensation for the firm. Page 14

15 Agree timeline with all parks Microsoft Office Excel Worksheet Page 15

16 PBC (Requisite for efficient audit) Sending PBC Reviewing the PBC Comments in the PBC Audit of PBC and Financial Statement Page 16

17 Prepare by Client (PBC) PBC Example Microsoft Office Excel Worksheet Page 17

18 Important items of PBC Provide items according to timeline (including Draft Financial statement) Request confirmations timely (Bank, legal and others) Requested breakdowns explained (Best practice) Information should tie with financial administration and accurate Information are reviewed and approved by management (Final figures) Page 18

19 Breakdown (Best practice) Breakdown example related to payables Microsoft Office Excel Worksheet Page 19

20 Ice Breaker 2 Page 20

21 15 Minute Break. Page 21

22 Accounting Best Practices Account reconciliation (Cash, Inventory stock ledger, payroll ledger Legal and ect.) Accrual Accounting (liabilities) - (refer also to example) Account receivable accounting - (retail products) Inventory pricing and valuation Inventory (retail product) Sales (retail product) - Revenue recognitions Subsidy (Restricted & non Restricted) Payroll Page 22

23 Account reconciliation Account reconciliations should be complete - no account left behind. Account reconciliations should be accurate. Account reconciliations should be completed and reviewed in a timely manner. Account reconciliations should support the appropriate accounting principles. The account reconciliation process should be constantly reviewed and improved. Page 23

24 Accrual accounting (Liabilities) Utilities Water/ Electricity Communication Telephone Expenses Monthly Taxable Salary tax AVO/ AWW Housing Page 24

25 Account receivables accounting / Sale and Inventory (Fees & tags) Group discussion Page 25

26 Inventory (Retail products) Definition: Inventory is commonly used to describe the goods that a business holds for the ultimate purpose of resale The cost of inventory should include all costs necessary to acquire the items and to get them ready for sale. Page 26

27 Inventory Existence (Stock take) Inventory Pricing FIFO Weighted Average Inventory Valuation Obsolesce Damage goods Page 27

28 Subsidy Page 28

29 Subsidy Restricted (Deferred income) Non restricted Example of Restricted (Deferred income) Adobe Acrobat Document Page 29

30 Payroll Important aspects of Payroll Allowance 13 de Month Vacation days Social Security (Payables) Pension Income Tax Example Payables Microsoft Office Excel Worksheet Page 30

31 Ice Breaker 3 Page 31

32 Important accountant and how to audit Inventory Reconciliation (Sub ledger with G/L) & price testing Deferred Income Verification of expenses per project Subsidy Fee Payroll Subsidy letter & obligations Completeness /subsequential numbers Reconciliation with verzamelloonstaat / Payroll subledger Page 32

33 Audit Adjustment and Financial Statement SAD (Summary of Audit Differences) Example Process of draft Financial Statement Financial statement Version V-2 / V-3 Verification Adjustment processed accordantly Microsoft Office Excel Worksheet Page 33

34 Audit opinion and process of management letter An audit opinion is expressed on audited statements. It is required that an auditor state in the opinion that generally accepted accounting principles have been followed that they have been applied on a basis consistent with that used the preceding year. Importance of the audit opinion: Auditing is the analysis of the financial accounts/records, by a qualified accountant, and procedures of a firm or organization. This is essential in order to gain a fair perspective on the company's financial statements. With auditing, potential investors and creditors can look at the financial statements to decide whether to invest in a business or not. Auditing is important as it also protects the public from scams and corrupt business procedures. Recommendation in a form of Management Letter Page 34

35 Type of audit opinions Page 35

36 Audit opinions Unqualified opinion The unqualified opinion has no reservations concerning the financial statements. This is also known as a clean opinion meaning that the financial statements appear to be presented fairly. Qualified opinion This means that the auditor has taken exception to certain current-period accounting applications or is unable to establish the potential outcome of a material uncertainty. Disclaimer opinion This is a special type of audit report that should be issued when the auditor permits his or her name to be associated with financial statements that were not examined in accordance with generally accepted auditing standards. Adverse opinion This is a type of audit opinion which states that the financial statements do not fairly present the financial position, results of operations, and changes in financial position, in conformity with generally accepted accounting principles. Page 36

37 Process of Management letter Example of Management Letter Microsoft Office Word Document Page 37

38 Ice Breaker 4 Page 38

39 Management responsibilities Engagement letter Opinion LOR (Letter Of Representation) Page 39

40 Management responsibilities Engagement letter Responsibilities and limitations Preparation and fair presentation of the financial statement Internal controls as management determines Provide access and timely on all information Provide additional information requested Consequences of management failure to provide incorrect information Audit adjustment and in compliance with accounting guidelines should be processed accordantly and reviewed timely Page 40

41 Management responsibilities LOR The management confirm the following: Fulfilled there responsibilities confirm engagement letter Acknowledge responsibilities related to internal controls Disclose all known actual or suspected non-compliance Provide completeness of information and transactions Disclosed and informed of all Liabilities and Contingencies Subsequent events Ownership of Events Page 41

42 Summary Page 42

43 Thank you Page 43

ACC 269 Auditing and Assurance Services

ACC 269 Auditing and Assurance Services COURSE DESCRIPTION: Prerequisites: ACC 220 Corequisites: None This course introduces selected topics pertaining to the objectives, theory, and practices in engagements