Applying SOX as a model, the nonprofit’s audit firm ought to report solely for the audit committee. This arrangement is often a departure from pre-SOX days, when auditors in private providers also reported to management on several different difficulties. Congressional hearings on SOX revealed an inherent conflict inside the interaction amongst management plus the auditors who had been, in impact, evaluating the effectiveness of management’s policies.
The audit committee is expected to avoid management from influencing audit outcomes. SOX especially states that the committee’s function contains the resolution of disagreements amongst management and outside auditors with regards to economic reporting. Applying the SOX model suggests that the audit committee ought to possess a complete understanding of occasions that influence the nonprofit and the nonprofit’s operations in an effort to adequately have an understanding of and resolve these disputes.
Additional, auditors are essential to report the following information and facts straight to the audit committee:
- All significant accounting policies and practices to become made use of
- All option treatment options of economic information and facts inside Frequently Accepted Accounting Principles which have been discussed with management, the ramifications of applying option disclosures and treatment options, plus the remedy preferred from the auditor
- Any other material (important) written communications amongst the auditor and management, just like a management letter or schedule of unadjusted differences
