Performance audit

Since the beginning of 2011, association accountants are called performance auditors regardless of what is mentioned in the association rules. Accounting is only performed in very rare associations since it cannot be carried out by any other than those who have completed a professional accounting degree or a professional auditing firm.

All documents of the previous year, such as the minutes, accounts and the financial statement must still be submitted to the auditor in good time. The auditor(s) will provide a report covered in the association meeting in the spring. The association meeting confirms the financial statement and grants or denies a discharge to the parties in charge.

Laymen and professionals

The title of performance auditor must be used. One of the main objectives of the law reform was that the term ‘accountant’ will be reserved only for professionals. Therefore, in the autumn meeting, the associations must choose performance auditors instead of accountants. The associations should also take the title into use immediately even if the rules approved before the law reform would still refer to the accountant except if the legal obligation to choose an accountant is fulfilled (two out of the following must be fulfilled: 1) the balance total exceeds 100 000 euros 2) sales revenue or income exceeds 200 000 euros; or 3) there are more than three people on staff on average).

Naturally, the associations can still carry out traditional accounting but it is good to remember that professionals charge a commission for their work, which can easily be several hundred euros. Smaller associations rarely can afford to carry out accounting and seldom even have the need for it.


Duty and eligibility

The performance auditor’s main duty is still to determine on behalf of the members whether the association’s administration and financial management are handled appropriately, the association’s operations comply with the law and the association rules and the financial statement correspond with the operations and financial position of the association.

A single member cannot clarify this as the board has the right to keep the association documents secretive and the members do not have the right to see other than the association meeting minutes and the basic membership list. However, the board must submit all documents to the performance auditor and the auditor has the obligation to reserve secrecy.

Eligibility criteria remained the same. The performance auditor must be of legal age at the beginning of the inspected period. In order for the audit to be credible, the auditor should not have too close ties with the board members or key employees.

Auditing performance

A normal performance audit must inspect the minutes of the board and association meetings and continue to inspect bank statements, receipts, records, financial statement and the annual report.

The minutes are inspected to ensure that members are treated equally, decisions made in the meetings comply with the Associations Act and that the rules and decisions that were made have been followed. Take especial care that financial decisions are made correctly.

The auditor checks the bookkeeping, financial statement, bank account and petty cash to ensure that the funds exist. The auditor also checks that the association has remembered to enter all money transactions in bookkeeping, any missing receipts are clarified, income and expenses are targeted to the right financial period and the money in general is used for the association expenses, not for personal needs of the board members, for example.

The association meeting and association rules may give more detailed instructions on the performance audit and its contents.

Performance audit report

The performance audit report is informal and it does not have to include a separate statement. If no problems are detected, the report can be very brief.

The report should mention (in general) the documents that were audited, whether the association administration and financial management are properly organised and whether there are obstacles to confirm the financial statement and the discharge of liability.

In addition, please remember to mention the accounting period for which the operations are audited.

The report must include all irregularities detected by the auditor, including suspicions. If essential damage was caused to the association, it should also be mentioned.

The report does not need to take a position on who is responsible for the damage.

The audit often finds minor careless errors but they do not have to be listed in the report. It is advisable to submit a separate memo to the board on minor errors so that they can be corrected in the future.

Audit entry

It is advisable to make a brief entry into the financial statement signed by the board, such as ”The performance audit report submitted on 17 Oct 2011″ followed by the signatures of performance auditors. In this way, it is easier to know which financial statement paper is the original one, the one that is audited. However, this entry is not mandatory.

If the performance audit report is very brief, smaller associations may write the whole report by hand directly on the back of the financial statement paper, such as ”Performance audit completed on 17 Oct 2011. The administration and finances of the association are managed properly”.

In order to keep accounting and the performance audit clearly separate, the performance auditor should no longer say, write or express anything about accounting or the compliance with generally accepted accounting principles.

Differences between performance auditing and accounting

The performance auditor does not need to ponder whether some section of the Accounting Act or the decree is followed exactly. It is enough to focus on the overview. Accountants are required to have an in-depth knowledge of accounting and the Accounting Act.

In addition to the Associations Act, all associations, including the unregistered ones, must comply with generally accepted accounting principles and the Accounting Act and the decree, including all sections.