Audit Options & Requirements

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Levels of Professional Service

Audit Options and Requirements

Credit union audit requirements are defined in Section 715 of the NCUA rules and regulations. All federally insured credit unions with assets of $500 million or more must have a full opinion financial statement audit performed by a licensed independent CPA in accordance with generally accepted auditing standards. Credit unions with less than $500 million in assets have four options available. The first option is a full opinion financial statement audit, as described for larger credit unions above. The second option is a balance sheet audit, which omits the statements of income, members’ equity and cash flows. The third option is a report on the examination of control over call reporting under attestation standards. This option is rarely selected and will not be discussed in this summary. The final option consists of minimum agreed-upon procedures as determined by the Supervisory Committee. This type of engagement must contain the minimum procedures as described in the NCUA Supervisory Committee Guide. While financial statements are ultimately the responsibility of credit union management, the independent auditor can provide assurance to directors, regulators, and other financial statement users that financial information is fairly reported and materially correct.

A full opinion financial statement audit is completed when the independent auditor issues a report and opinion as to whether the financial statements fairly present the financial position and performance of the credit union in accordance with generally accepted accounting principles (GAAP). This type of audit cover the statement of financial condition (balance sheet), the statement of income and expenses, the statement of changes in members’ equity, and the statement of cash flows.

In order to issue a clean (unqualified) audit opinion, the auditor must determine that the aggregate amount of error in the financial statements does not exceed the planned amount acceptable error (materiality). The auditor must also make certain the financial statements are presented in accordance with constantly evolving reporting standards issued by the Financial Accounting Standards Board (FASB). Any findings that are of significance are either included in the auditor’s report or communicated to management and the Supervisory Committee in a separate letter. A full opinion audit provides the highest level of assurance to users of the financial statements. It is also the most costly option due to the substantial amount of time and effort required to complete the audit. This is mitigated somewhat by the fact that a verification of member accounts is required by auditing standards. A supplemental member verification report is provided to clients electing this level of service.

An audit of the statement of financial condition (balance sheet) can provide independent assurance that the balance sheet is presented in accordance with GAAP and materially correct. A balance sheet audit does not cover the income statement, statement of changes in member’s equity, or cash flow statement. A balance sheet option therefore requires less time requires less time and effort than a full opinion audit and is less costly. Credit unions under $500 million in assets that are more complex (mortgage loan originations, complex investments, loan participations, etc.) with effective internal controls should consider this level of service. As with a full opinion audit, a member verification is included and a supplemental member verification report is provided.

As noted above, minimum agreed-upon procedures, as defined in the NCUA Supervisory Committee Guide, provides the minimum level of examination procedures acceptable to the NCUA and most state regulators. A credit union examiner may require a higher level of service if the examiner suspects or believes the credit union is not properly reporting assets or liabilities or has other weakness in internal controls. However, for well managed smaller institutions, agreed-upon procedure engagements provide a low cost option for meeting regulatory requirements with a minimum of disruption to operations. Minimum procedures can also be augmented with additional testing as requested by the supervisory committee. For instance, the committee may request that fixed assets be included in instances where the credit union completed a major remodel or a major equipment purchase. A review of Bank Secrecy Act (BSA) compliance or other compliance review can also be integrated into the agreed-upon procedures engagement in order to meet regulatory requirements. No opinion is issued for an AUP engagement. Instead, the AUP report includes a supplement of procedures agree-upon by the supervisory committee and the results of performing the procedures.

In addition to meeting the requirements defined in Part 715 of the NCUA Rules and Regulations, an audit can serve as an “annual check-up” on the effectiveness of the Credit Union’s policies and procedures for safeguarding assets, meeting regulatory compliance requirements and producing fairly stated and useful financial reports. Supervisory committee members should consider credit union structure, complexity, management issues, regulatory examination results, and recent events at the credit union when determining an appropriate level of audit service.

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Every credit union has different requirements. Contact Daren B. Tanner, P.C. to learn what a credit union specialist can do for your credit union.