Are you really ready for your co-op’s 2022 audit? The finance team at NCG has been hearing some themes around audits for the 2022 fiscal year and wants to share them with you so your co-op is in the know and can plan accordingly.
You may be aware that the market for financial professionals has been difficult all around: Not only have many of our member co-ops had difficulty filling open finance manager roles, but the firms that regularly audit and review cooperatives are also short-staffed. According to the Washington Post, “the American accounting profession has suffered from a shortage of talent for years. Bloomberg Tax calculates that the number of accountants and auditors employed fell by 17% between 2019 and 2021.” The article goes on to say that the shortage is related to supply but is “exacerbated by high turnover and growing demand.”
The shortage of accounting personnel means that it may be more difficult to successfully engage for an audit or review for the 2022 fiscal year. If you have not already reached out to your usual accounting firm, you should do so as soon as possible to confirm your audit or review engagement for the next year and to ensure availability of the firm, staff and/or the usual completion time of your engagement.
Best practice for audits would have a company change its audit staff every five years. It is acceptable to do so within the same audit firm, for instance, by changing the audit partner. But if you need to look elsewhere for a new service provider, NCG has developed a template for a request for proposal (RFP) for audit or review services. Seeing that audit professionals have become less available, we have also been building a list of audit/review firms that have experience with cooperatives. The RFP template is available here, and the auditor list is available upon request from your NCG resource manager.
New Lease Accounting Standards in Effect
In other accounting news, the new lease accounting standards (ASC 842), that have long been expected, will finally be required for 2022 audits. The Financial Accounting Standards Board (FASB) set out new rules for lease accounting in 2016, setting accountants all atwitter, but the rollout of the rules has been delayed for so long that many co-ops may no longer be aware that the new rules are actually set to go into effect for organizations with fiscal years beginning after December 15, 2021.
We strongly recommend that you consult with your accounting firm on valuation and how the new rule will affect you. In a nutshell, the FASB will now require that all financial leases — think about not just leases for store space but also those for your office equipment (copiers) and store equipment (refrigerators) — be properly valued and shown as both an asset (you’re actively using the asset) as well as a liability (the lease payments will be a liability until lease termination) on your balance sheet. Not only will the valuation have an impact on your financial statements, but also this new and potentially large, long-term liability may impact the achievability of current debt covenants. If you have loan covenants, we advise that you review them carefully and consult with your lending institution about the possible effects of this new rule on your loan.
An annual financial audit or review is an important part of the financial processes, oversight and governance of a healthy organization. Proactive preparation for the process will help to ensure a smooth engagement for your co-op.
NCG Finance Services Manager Pamela Reeves and Finance and Budgeting Specialist Brian Ripley also contributed to this article.
