How to organise an external audit

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How to organise an external audit

An external audit is an unbiased, independent review of an organisation’s financial situation conducted by an external auditor. Most organisations, but not all, are required to have an external audit each year.

Understand the role of the auditor

An external auditor checks the financial records of the organisation to assess whether they are accurate and comply with the Corporations Act 2001.

The auditor must be a member of the Institute of Chartered Accountants, Certified Practicing Accountants or another prescribed body. They must hold a recognised tertiary qualification majoring in accounting, with an auditing component, and be registered with the Australian Securities and Investments Commission.

Find an auditor

Not all auditors have experience with auditing community service organisations. You might want to ask other similar organisations for recommendations on an auditing firm.

You can interview potential auditors before making your decision.

  • Ask them for references of previous experience
  • Ask them questions about how they will go about the audit process
  • Ask them how they will work with and educate your staff to prepare for the audit
  • Ask them for a proposal and quote to include:
    • confirmation of the dates for the audit
    • a description of the services to be provided
    • what the organisation’s staff will be responsible for
    • the fees charged for the work and related audit documentation.

Check for conflicts of interest

Before you decide on an auditor, check for any potential conflicts of interest.

The external auditor must be independent and external to the organisation. As part of the Corporations Act 2001, the external auditor has to declare (in writing) that they are independent and have not breached requirements of the Act or their professional codes.

Make your decision

Depending on your organisation’s structure and constitution the board might directly identify and appoint an external auditor. For membership based organisations the board recommends an external auditor, who is voted for by the members at the Annual General Meeting.

Consider appointing an audit and risk subcommittee

Given the increased focus on managing risk and complying with legal and reporting requirements many boards will have a permanent audit and risk committee. This subcommittee is usually headed up by the board’s chairperson or treasurer and will, on behalf of the board, oversee the audit process. Because of the board’s financial responsibilities, it is essential that the chair of the subcommittee reports to the full board on any audit matters.

Here is a link to a template Terms of Reference for a Finance Audit and Risk Sub-Committee.

Conduct your audit

Provide the audit firm with a clear description of the organisation and its audit requirements.

You will need to provide the auditor with access to all your financial documentation and facilitate any face to face discussions that they need to conduct with staff and the board.

You can ask for regular updates from the external auditor, including having the external auditor attend an audit and risk committee or board meeting to present their report.

Table the audit report

The findings of the audit are tabled at the annual general meeting (AGM) along with the treasurer's report.

Also refer to How to organise an AGM.

Review any recommendations the auditor may have for you

An external auditor provides information, reports and advice to the board and the organisaiton but is not responsible for problems identified. The board is ultimately responsible for the running of the organisation, including its financial situation.


Click here for more details about audit requirements and processes.