Many organisations receiving grant funding will be preparing for audit. Whether your funder requires an ISA 800/805 audit, an ISAE 3000 assurance engagement, or an agreed-upon procedures report, early preparation is key to ensuring a smooth and successful process.
Understand the audit requirements
Start by reviewing the grant agreement and any accompanying guidance. Key questions to clarify:
- Is an audit, assurance engagement, or AUP required?
- Are there specific reporting templates or formats?
- What is the deadline for submission?
- What is the audit period?
- If there are partners when will their reporting be complete?
- When will the consolidated financial reports be ready?
If the requirement is unclear, seek clarification from the funder early – assumptions can lead to misalignment and delays.
Identify the reporting framework
For ISA 800/805 audits, the financial statements must be prepared using a special purpose framework. This could be:
- Cash basis reporting
- Fund-specific formats
- Project-level income and expenditure statements
Ensure your finance team understands the framework and how it differs from statutory reporting.
Some donors also have specific formats that they want the reporting completed within, ensure this is identified early on so reports can be prepared accordingly.
Demonstrating Compliance and Evidence of Grant Expenditure
Map Grant Expenditure to the Agreement
Auditors will test whether grant funds were used in accordance with the agreement. This means:
- Clear documentation of eligible vs. ineligible costs
- Evidence of procurement compliance (where applicable)
- Reconciliation of grant spend to financial records
Where possible, maintain a grant-specific ledger or cost centre to simplify this process.
Gather Supporting Documentation
Auditors will request evidence to support reported figures. This may include:
- Invoices, contracts, and payment records
- Timesheets or payroll records (for staff costs)
- Delivery evidence (e.g. reports, photos, KPIs)
- Board minutes or governance records
Ensure documents are complete, accessible, and clearly linked to the grant.
Engage early with your auditor
At Menzies LLP, we recommend engaging with your audit team well before year-end. This allows time to:
- Agree the scope and form of the audit
- Plan fieldwork and timelines with clear deliverables needed for each stage.
- Identify any gaps or risks early
We tailor our audit procedures to the funder’s expectations, ensuring compliance while minimising disruption to your operations.
Avoid common pitfalls
Some of the most frequent issues we encounter include:
- Misunderstanding the audit requirement (e.g. assuming a statutory audit suffices)
- Poor documentation or missing evidence
- Not having documentation from project partners
- Late engagement with auditors
- Ineligible costs being claimed
These can lead to audit qualifications, clawbacks, or reputational damage — all avoidable with proactive preparation.
Preparing for a grant audit is not just about compliance, it is about demonstrating accountability, transparency, and value for money. With public and philanthropic funders under increasing pressure, organisations must be ready to meet higher standards of assurance.
If your organisation receives grant funding, now is the time to contact our team at Menzies LLP. We are here to help you navigate funder requirements with confidence.
Note: While we use the term “grant audit” throughout, funders may require different types of assurance – including audits, assurance engagements, or agreed-upon procedures (AUPs). We tailor our approach to meet these specific requirements.
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