8a. Audit Overview
Audits are reviews of an organization’s financial accounts and financial accounting systems by such independent third-party experts as certified public accountants. An audit usually consists of a series of tests conducted by the auditor that assess the effectiveness of the organization’s financial management policies and procedures. Audits ensure compliance with applicable regulations and that proper accounting and disbursing of funds is occurring.
What Do Financial Audits Tell the Reader?
Audits answer basic questions about how well an organization is managing its financial resources. They include opinions on whether the organization’s financial statements are presented fairly in all material aspects and in conformity with the Generally Accepted Accounting Principles (GAAP). Audits also include an assessment of an entity’s:
- Schedule of expenditures — Is it accurate?
- Contracts or grant agreements provisions — Do they comply with laws and regulations?
- Financial records — Do they accurately reflect the entity’s financial position?
- Controls and systems — Are they adequate?
How Should Grantees Treat the Costs of a Financial Audit?
The costs of audits made in accordance with the applicable regulations are allowable charges to Federal assistance programs. Grantees should treat these as either a direct cost or an allocated indirect cost.