The work carried out by the third sector auditing also aims to strengthen controls Organization is fundamental to the growth of a company. Workflows, for example, must be properly aligned between teams and the production line. In this way, the quality and delivery of a product or service is guaranteed. In the same way, the company's financial statements also require this organization, to guarantee transparent, solid and useful reporting for corporate governance.
The definition of accounting auditing Before specifically addressing third sector auditing, it is important to understand accounting auditing as the process of verifying balance sheets and financial statements. It consists of analyzing and evaluating whether the company's numbers reflect the true financial, and economic situation. Therefore, it provides important benefits for administrators and business owners. These advantages should never be overlooked, as they are fundamental to business security.
The first and greatest benefit of auditing is the identification of inconsistencies in the financial statements. Errors in these numbers are dangerous, as they can result in problems before the courts, such as fraud and the non-payment of due taxes. Being aware of the errors, the entrepreneur can ask the financial team to correct the flaws.
The importance of auditing for the third sector is indisputable, as it plays a fundamental role in ensuring the transparency, reliability, and efficiency of non-profit organizations. The third sector encompasses a variety of institutions, such as non-governmental organizations, philanthropic entities, associations and foundations, whose main objective is to promote social, environmental, cultural or economic well-being.
Main stages of accounting auditing In a nutshell, the main purpose of accounting auditing is to examine the information contained in a company's financial statements. The purpose of this process is to review the financial documents of a company, in order to have an updated and true view of the accounting situation, to determine their reasonableness.
When carrying out an accounting audit work for a company, there are certain steps and phases that are followed by professionals and it is no different in auditing the third sector. The first phase is planning, when relations are established between the auditors and the audited firm, to determine issues such as scope and objectives. An outline of the company's situation is made, about its organization, accounting system, internal controls, strategies, and other elements that allow the auditor to prepare the auditing program that will be executed. At this stage, preliminary analyses, risk analyses, knowledge and understanding of the company's activities are also developed.
The next phase is the execution phase.. In addition, in this phase, possible flaws are also detected, when the test results are evaluated and the findings are identified.
Then, the conclusions and recommendations are drawn up to finally communicate them to the company's leadership. It is the phase of finalizing and preparing the audit report, which must contain, first of all, the opinion on the financial statements of the audited administrative area. It must also contain the conclusions and recommendations resulting from the audit, detailing the findings in a clear and simple way.
Why do an Accounting Audit The accounting audit thoroughly analyzes the accounting documents, verifying that the financial statements are compatible with the financial situation, as well as verifying whether the accounting principles are respected. Carrying out a third sector audit is essential, since it is a process that ensures the accuracy of the records, preventing irregularities or fraud.
Even if the company is not part of the mandatory list, there are many advantages in seeking an accounting audit. In addition to the knowledge of the real situation of the company, the ability to monitor the finances in a more detailed manner collaborates with planning and projections of future scenarios.
It should be noted that, in order to obtain satisfactory results with the accounting audit, it is essential to have the support of a professional accountant, with knowledge of national and international accounting standards and the competence to monitor their constant updates.
The planning for the auditing of the third sector
To carry out a satisfactory accounting audit, including the third sector audit, it is necessary to have experienced professionals. The accounting auditor must have prior knowledge about the business carried out by the company, as well as its organization, applicable legislation, and other factors. Therefore, the data necessary to obtain the information must be available to this professional. Among the points to be considered for carrying out the audit are:
The nature, timeliness, and extent of the auditing procedures to be applied; The need to meet the deadlines established by the agency itself or by third parties; Execution individually or in conjunction with other bodies. The number of third sector entities has grown a lot in Brazil in recent years. The third sector includes voluntary and community organizations, social, mutual and cooperative entities, that is, non-profit. On the other hand, there was also a marked growth of philanthropy organizations for the embezzlement and laundering of public money. In view of this, we can see the importance of auditing the third sector as a tool to assist management in the oversight of regulations and policies.
The auditing of the third sector is a requirement that may be statutory or legal, coming from funders or public authorities, or even due to the liberality of the governing body.
The auditing of the third sector must be carried out by independent auditors, authorized by the CRC - Regional Accounting Council and in some cases also registered with the CVM - Securities and Exchange Commission.
Given the increasing regulation for these entities and because their operations are similar to those of companies in general, auditing the third sector has become a valuable tool for their management, be it of any size, since the possible contingencies brought about by management, fiscal, financial and labor risks also exist in these organizations.
Third sector accounting complies with accounting principles (Law No. 6404/76, amended by Law No. 11638/2007), ITG 2002 (Resolution No. 1409/2012), NBC TG 1000 — Accounting for Small and Medium Enterprises, or the full IFRS standards. Decree Law No. 8,242/2014 specifies that philanthropic entities are required to submit their accounts under the scrutiny of a third sector audit.
Accounting plays a fundamental role in the third sector, both to clearly demonstrate activities and to prove financial suitability in the case of receiving public funds. In addition, these entities must also prove that they are eligible for tax exemption. When private funds are received, compensatory measures are normally required and the financial statements must be approved by independent auditors. With the third sector audit, an auditor will express a formal opinion on the entity's accounts and will examine the financial statements, validating that they adequately represent the organization's financial and financial situation.
In third sector auditing, internal auditing is also relevant, in which internal controls are evaluated, with the objective of verifying and validating operations, identifying errors and/or fraud and suggesting improvements to prevent them. This audit also provides greater credibility to the organization, since it establishes control plans through methods that evaluate and optimize processes. The purpose of third sector auditing is to assist management in complying with responsibilities and obligations.
With the increase in oversight of third sector entities, third sector auditing has become a valuable tool for their management, be it of any size, since the possible contingencies brought about by management, fiscal, financial and labor risks also exist in these organizations.
Third sector accounting complies with accounting principles (Law No. 6404/76, amended by Law No. 11638/2007), ITG 2002 (Resolution No. 1409/2012), NBC TG 1000 — Accounting for Small and Medium Enterprises, or the full IFRS standards. Decree Law No. 8,242/2014 specifies that philanthropic entities are required to submit their accounts under the scrutiny of an external audit of the third sector.
In the third sector audit, several situations are identified that have negative financial effects. Therefore, the higher the quality of internal controls in the entities, the greater the security of their actions. It is the auditing of the third sector that provides the opportunity to test and evaluate the entity's procedures, as well as their effects. This importance of internal controls has been the reason why entities are also looking for internal auditing services.
The most important thing is that, although the new regulations for the sector established clear and objective criteria for the provision of charitable services, they also brought accounting and ancillary obligations so that the tax exemption is maintained. In this case, it is no longer sufficient for the entity to provide quality care services, but it also needs to maintain adequate controls and impeccable bookkeeping. Hence the importance of auditing the third sector.
Entities that have difficulty obtaining negative tax debt certificates, for example, are normally the result of failures in accounting records or incorrect accounts. The auditing of the third sector adjusts the entity's accounting routines so that it takes advantage of legislative opportunities.
The work carried out by the third sector auditing also aims to strengthen controls, bringing credibility and transparency to the entity, through the validation of the amounts presented in the financial statements. It also audits HR routines and procedures, integrates the accounting area with the social area, verifies technology systems, and validates accountability.
Third sector auditing as a transparency instrument “Third sector organizations” is a term used to describe the range of organizations that are neither part of the public sector nor the private sector. It includes voluntary and community organizations such as associations, self-help groups and community groups, social, mutual and cooperative enterprises. And like any company, they are also accompanied by the auditing of the third sector.
With the growth of third sector organizations, there is a positive perception by donors and stakeholders of those that are transparent to society. This is because in practice, few entities disclose their financial statements to the public, which has changed over time, given the regulations and regulations aimed at those entities that require auditing the third sector, providing a higher rate of disclosure of their financial statements.
It is therefore necessary to understand the relevance that auditing the third sector can bring to non-profit entities, since it adds credibility to the organization's image. The opinion of experts has already been consolidated that auditing the third sector provides a higher degree of reliability to users of financial statements.
Many third sector organizations have already become aware of the value that auditing brings to the organization and hire the service, understanding that auditing the third sector, in addition to contributing to the credibility of the financial statements, also contributes to the improvement of internal controls and aggregates concepts of corporate governance.
The work carried out by the third sector auditing also aims to strengthen controls, bringing credibility and transparency to the entity, through the validation of the amounts presented in the financial statements. It also audits HR routines and procedures, integrates the accounting area with the social area, verifies technology systems, and validates accountability.
In a context where trust and credibility are essential to attract resources and collaborators, carrying out audits provides external validation of the financial and operational processes of third sector entities. Not only does this practice reassure donors, sponsors, and partners, but it also helps protect the organization's reputation.
A well-conducted audit is not only limited to verifying that the accounting records are correct, but it also assesses compliance with applicable laws and regulations, analyzes the effectiveness of internal controls, and assesses the impact of the organization's activities. This contributes to a more efficient management of available resources, ensuring that they are properly directed to achieve the proposed social objectives.
It is important to emphasize that transparency and accountability are essential values for the third sector, as they contribute to the construction of a more just and democratic society. In this sense, audits not only meet legal and regulatory requirements, but also promote an organizational culture based on integrity, responsibility, and trust.
In summary, auditing the third sector is an essential practice, as it strengthens the management of non-profit organizations, increases the trust of stakeholders and contributes to the achievement of their social objectives. By investing in robust and transparent auditing processes, third sector entities reaffirm their commitment to effectiveness, ethics, and positive impact on the community.
TATICCA performs auditing and issues reports on the financial statements and other reports of third sector entities, in compliance with the guidelines of the Federal Accounting Council - CFC and the entities themselves. Contact us to learn more about the practical aspects of third sector auditing.
Get in touch with TATICCA Allinial Global Brazil , which provides integrated auditing, accounting and tax services, corporate finance , Financial Advisory , Risk Advisory , technology, business consulting and training. For more information, visit www.taticca.com.br or email taticca@taticca.com.br. Our company has professionals with extensive experience in the market and has certified methodologies for carrying out activities.
