In this blog piece, StudyOnline.ie auditing lecturer, Colm Foley, discusses the issue of governance and its role for the external auditor. The Football Association of Ireland (FAI) is used an example to highlight this relationship. This blog piece is particularly relevant for students sitting Auditing exams.
In August 2019, an advertisement appeared in leading national newspaper setting out that the FAI is recruiting for an independent chairperson and 3 independent non executive directors to join its interim board as the sporting body continues to attempt to repair the governance weaknesses highlighted earlier in 2019.
Some of the responsibilities of the FAI Interim Board, as advertised, should be familiar to auditing students. For example
- “Monitoring Organisational and Financial Performance” : R
- “Overseeing the development, promotion and regulation of football matters” “Agreeing and Overseeing Annual Budgets” “Overseeing Major Capital Expenditure and Investment Decisions” “Ensuring effective risk management and internal control processes are in place”: E
- “Ensuring legal, regulatory and governance obligations are adhered to” : C
The letters R,E and C refer to the “REC” memory aid, which sets out that the reasons why entities, in this case a sporting body” set up , maintain and improve an internal control system is produce reliable financial information, have efficient and effective operations and ensure compliance with laws and regulations. By working to constantly achieve “REC” entities will maximise profits and/or meet the aims for which they were set up.
For the external auditor of the FAI, if the FAI is found to have a strong system of monitoring financial performance, then this may lower control risk when it comes to the auditing the financial statements, as there may be less likelihood of misstatements being presented in the draft accounts. Likewise if the FAI has is found to have strong controls in place to ensure legal , regulatory and governance obligations are met, then this will impact on the audit work relating to provisions and contingent liabilities and the risk of completeness of provisions and contingent liabilities in the financial statements.
In summary, as the FAI works to correct the governance deficiencies , as highlighted by earlier revelations in 2019, the moves to strengthen their internal control system, will have an impact on the work of the external auditor, in future audits.