If you are on the lookout for guidance on producing standards and practices for an audit committee, a fantastic spot to begin is Section 301 of your Sarbanes-Oxley Act (SOX). Despite the fact that SOX does not technically apply to nonprofits, it might serve as a superb model. Three components identified in Section 301 of SOX are in particular adaptable to and handy for the nonprofit audit committee standards:
- Responsibility: SOX states that the audit committee should really be straight accountable for the appointment, compensation, and oversight of your operate of any registered public accounting firm. This responsibility aids retain the independence of management from the auditors that are auditing the organization (and consequently the management’s actions).
- Resolving disputes: SOX calls for audit committees to become accountable for resolving disagreements amongst management plus the accountants. Disagreements can come up as to how many items are reflected and reported on the economic statements, especially if management’s compensation is tied in any solution to that of your organization (one example is, a bonus).
- Communicating together with the auditors/accountants: SOX tends to make clear that the audit committee is accountable for communicating straight together with the auditors or accountants and making certain that management is not filtering the information and facts in an try to portray it as rosier than it definitely is. Based on the size and activities of the nonprofit organization, it may perhaps employ an outside accounting firm to audit or overview its economic statements and books and records. A overview of economic statements is often a verification course of action that is much less substantial than an audit and is undertaken when federal and state law does not call for a formal audit.
