An external audit is the process of having someone independent review an organization’s financial statements and form a view as to whether or not they reflect the actual state of the money and property of the organization.
The independent reviewer (known as the auditor) must follow certain standards known as auditing standards. The external audit provides reassurance to the First Nation and other readers of the financial statements that what they are reading reflects reality.
Under the FAL, Council is responsible for overseeing the external audit through recommendation from the Finance and Audit Committee.
Council must create a policy about the yearly external audit of the First Nation’s financial statements and special reports.
This policy must include the steps for the choosing and getting rid of the auditor and must require that the auditor be:
- independent of the First Nation
- a public accounting firm or public accountant in good standing with the Chartered Professional Accountants of Canada (and the equivalent group for the province or territory where the public accounting firm or public accountant is located and practicing)
This policy must state that the Council document the choosing of an auditor in an engagement letter. This auditor must meet the standards set by the First Nation’s policy. The engagement letter states that once the audit has been completed, the auditor must confirm (in writing) that the financial statements and audit follow the rules, regulations, and standards of the FMB and all laws that may be relevant. If there are items where these rules, regulations, and standards were not followed, the auditor must also state these and the reasons for them.
This policy must also state that Council require the auditor to:
- give an audit opinion on the yearly financial statements of the First Nation within 120 days after the fiscal year end
- give an audit opinion or review comments on the special purpose reports
- complete their tasks as needed and follow the auditing standards set by the Chartered Professional Accountants of Canada
This policy must also state that the auditor must be given the access and authority they need to carry out their responsibilities and tasks, including the following:
- access to all records. This includes books, accounts and vouchers, Council minutes and notes, Council resolutions, First Nation laws and agreements in which the First Nation is involved, and the ability to ask people about any of this information
- receive notices of all Finance and Audit Committee meetings. The auditor may choose to attend and speak at these meetings
- speak with the Finance and Audit Committee about any matters that the committee may need to think about. The auditor will decide if this is needed
- attend Council meetings where the yearly audit, including yearly financial statements, will be considered and approved. The auditor will be informed when this meeting is taking place. If the meeting is to discuss either keeping or getting rid of the auditor, the auditor may not attend
- speak at any Council and First Nation member meeting that the auditor has the right to go to or to which the auditor has been invited. This includes any meetings that may talk about issues that have to do with the auditor’s responsibilities and tasks