Overview
Did you know that a review of accounts means much more than just looking at your financial statements? Many organizations don’t realize they might need to do this by law. New Zealand charities must get an audit or review if their total operating costs go above $550,000 for two years straight.
You don’t need an accounting degree to read financial statements, but you should know what matters. Your year-end review of accounts receivable should match how the year actually felt to you. Regular account reviews help catch serious errors early. An audit gives you strong confidence that your financial statements are free from major errors or fraud. A separate review offers moderate assurance. Complex organizations should check their chart of accounts carefully to spot any wrong classifications. Books of accounts need a full review to spot issues you might miss otherwise.
This piece will show you the best ways to handle account reviews, figure out different assurance levels, and spot sneaky errors that could mess up your financial reports.
Understanding the Scope of Account Reviews
Account reviews and audits both evaluate financial statements, but they are different in scope and purpose. Organizations need to understand these differences to choose what works best for them.
Audit vs Review: Key Differences in Assurance Levels
Audits and reviews differ mainly in how much assurance they provide. An audit gives reasonable assurance – which means high but not complete confidence that financial statements have no major errors. A review gives limited assurance with moderate confidence and doesn’t express an opinion.
The amount of testing needed varies between the two. Audits need detailed examination of financial statements, transactions, and internal controls. They include thorough testing, third-party confirmations, and physical inspections. Reviews mostly use analytical procedures and ask questions to management. They focus on checking if financial statements need major changes.
The scope affects both cost and time. Audits take longer to complete and cost more than reviews. Reviews typically cost 10-15% less.
ISRE (NZ) 2400 vs ISA (NZ): Standards Comparison
Review engagements follow the International Standard on Review Engagements New Zealand (ISRE (NZ) 2400). Audit processes follow International Standards on Auditing New Zealand (ISA (NZ)).
ISRE (NZ) 2400 aims to get limited assurance through questions and analytical procedures. This standard helps assurance practitioners express conclusions that improve user confidence in financial statement preparation.
ISRE (NZ) handles internal controls differently than ISA (NZ). Reviews don’t need to evaluate control design, implementation, or how well they work. Instead, practitioners ask questions about controls related to financial accounting and reporting systems.
Why is periodic review of accounts important?
Periodic reviews play a crucial role in financial compliance. They help ensure financial statements follow applicable legislation and accounting standards.
Regular reviews help keep customer risk profiles current and maintain regulatory compliance. Organizations can check client risk levels as circumstances change and spot suspicious activities early.
These reviews protect organizations from financial crimes and damage to their reputation. They check key information used in compliance reports and assess how well anti-money laundering controls work.
Legal and Compliance Triggers for Reviews
Legal requirements dictate the timing of formal financial statement reviews for organizations. Understanding these obligations helps maintain compliance and proper governance.
Charity Audit Thresholds: $550K and $1.1M Rules
New Zealand’s regulatory framework sets clear financial oversight thresholds for registered charities. The requirements depend on operating expenditure over two consecutive fiscal years:
- Organizations must have their financials reviewed or audited by a qualified auditor if they spend over NZD 938,085.65 in each of the last two years
- A qualified auditor must conduct an audit if spending exceeds over NZD 1.88 million in each of the last two years
These requirements go beyond just financial information. Charities meeting these thresholds need their non-financial information audited or reviewed, including service performance reporting.
Independent review of accounts under Financial Reporting Act 2013
The Financial Reporting Act 2013 is the life-blood of financial reporting in New Zealand. This legislation maintains the External Reporting Board (XRB) and outlines its responsibilities to prepare and issue financial reporting and auditing standards.
The Act brought significant changes to reporting requirements for organizations of all types. Registered charities must now prepare General Purpose Financial Reporting (GPFR) according to XRB standards. This change created a unified approach to financial oversight and transparency.
When Constitutions or Funders Mandate Reviews
Organizations might need reviews even with expenditure below statutory thresholds. Two main factors drive this requirement:
- Constitutional requirements – Trust deeds, constitutions, or governing rules might mandate reviews or audits whatever the organization’s size
- Funder stipulations – Grant providers often require audited financial statements to track proper fund usage
Organizations have more flexibility in choosing their reviewer if their rules don’t specify a qualified auditor. They can also decide whether to include non-financial information in their review scope.
Small charities spending less than NZD 938,085.65 often choose voluntary audits to boost credibility, especially when they seek new funding.
Expert Techniques to Catch Hidden Errors
Accountants need a systematic approach to spot hidden errors. Expert professionals rely on several time-tested methods that help them catch mistakes others might miss.
Review chart of accounts for misclassifications
Misclassified accounts can throw off your financial reports and draw unwanted attention from auditors. Your accounting entries become inaccurate when the inherited account type doesn’t match its natural account segment value. This leads to financial statements that paint the wrong picture of your business’s health. A business might record short-term debt as a long-term liability, which makes the current ratio look better than it really is and hides potential cash flow problems.
Cross-checking income with bank deposits
Bank statements should match your financial records perfectly. You need to look for missing entries, duplicates, or charges nobody approved in your records. Make sure all your deposits show up as income in your accounts and identify where each dollar came from – sales, interest, refunds, or other sources.
Reconciliation of GST and tax payable balances
Tax authorities pay close attention to unreconciled GST differences. Your general ledger accounts should match all supporting documents. The GST you collected from sales and paid on purchases needs to line up with what you reported on your returns.
Verifying unpaid invoices and aged receivables
An accounts receivable aging report shows you which invoices haven’t been paid and for how long, usually in 30-day chunks. This report helps you spot debts you might not collect and decide which ones need immediate action. You should check invoices, contracts, and supporting documents to make sure everything exists and adds up correctly.
Best Practices for Review-Ready Financials
Good financial record preparation before review season will save time and reduce stress. Your financial statements need to be review-ready, so these practices will help you achieve that goal.
Setting up internal controls for year-end accuracy
Reliable financial reporting needs strong internal controls as its base. You should establish clear separation of duties so one person doesn’t handle all financial transactions. Leadership must show steadfast dedication through resource allocation and performance incentives to create a positive “tone at the top”. Continuous monitoring capabilities will give immediate updates about control effectiveness rather than depending on periodic testing.
Using accounting software like Xero for traceability
Modern accounting platforms come with built-in tools that help prepare reviews. Xero lets you set lock dates to prevent changes to past transactions during year-end report preparation. The software connects automatically to bank accounts so reports show current data. You can export these reports as PDFs or spreadsheets which makes sharing with reviewers simple.
Preparing for a year end review of accounts receivable
Start by looking at aging reports, particularly accounts outstanding beyond 90 days. Quick resolution of disputed invoices prevents unnecessary delays. Consistent invoicing schedules throughout the year help customers anticipate and prioritize their payments.
Documenting non-financial performance for full compliance
Document performance measures tied to strategic objectives beyond just financial data. Decision-makers should review non-financial KPIs regularly based on materiality assessments. External assurance helps stakeholders feel confident about internal control effectiveness and compliance with reporting standards.
Conclusion
Account reviews are vital for organizations that want to maintain financial accuracy and compliance. This piece explains how reviews are different from audits. They provide moderate assurance instead of high-level verification and need less time and money. These differences make a big impact when you choose what works best for your organization.
The law often requires formal reviews, especially when charities spend over certain amounts. You need to know these rules to avoid problems down the line. Your constitution and funders might also need reviews even when the law doesn’t require them.
Smart techniques help catch hidden errors and protect your financial integrity. You can cross-check income against bank deposits, match GST balances, and look through your chart of accounts for wrong classifications. These steps lead to more accurate financial reports and help spot issues that might go unnoticed.
Good preparation is the key to successful account reviews. Your review process becomes smoother when you set up resilient internal controls, use modern accounting software, and document both financial and non-financial performance well. Organizations that follow these practices usually find their reviews less stressful.
Reviews do more than just tick compliance boxes – they help you understand your organization’s financial health and show where you can improve. Regular reviews are worth the investment, whether required by law or not. They boost your organization’s financial transparency and help secure long-term success.
FAQs
Q1. What are some common accounting errors to watch out for?
Common accounting errors include transposition errors (swapping digits), rounding errors, omission errors (forgetting to record transactions), and principal errors (applying incorrect accounting principles). Be especially vigilant with wire transfers and account numbers.
Q2. How important is the reviewer’s role in catching errors?
While reviewers play a crucial role in catching errors, the primary responsibility lies with the preparer. Reviewers provide an additional layer of assurance but should not be relied upon as the sole means of error detection. Both preparers and reviewers share responsibility for accuracy.
Q3. What should I do if I keep making mistakes at work?
If you find yourself making frequent mistakes, slow down your work pace, create checklists for tasks, prioritize your workload, and ask for guidance on task prioritization. Consider implementing a personal review process and take time to understand the “why” behind each task.
About the Author: Jonathan Maharaj
