If you commission regular audits of your company, you know the purpose of an effective audit is to deliver both an appropriate audit opinion and an opinion in which your shareholders and other stakeholders have confidence. Many, if not most, accounting firms can provide that. So what differentiates one audit firm from another, and how should you assess the quality of your audit?
Below are a few tips and best practices for assessing the quality of your audit relationship.
- Who’s the new guy?
Your audit engagement partner should, well, be engaged. His or her involvement in planning, issue resolution and wrap up are critical to a successful audit. The partner is also responsible to ensure continuity of the engagement team and that the team is understands your business and culture, in addition to the significant accounting and auditing risks. Audit staff turnover is often unavoidable, but effective training and supervision go a long way in mitigating any negative impact turnover may have on the quality of the audit. This starts and ends with an engaged partner.
- Deep and wide, wide and deep.
I learned this old song in Bible School, and I see a correlation here. In this case, I’m referring to the depth and breadth of your audit firm’s resources. The global economy, complex business systems and interconnectivity, government regulations and the pace of change all require your audit firm to have specialized resources like never before. And just having the resources isn’t enough. Access to the right resources when you need them is what’s important. Assess you audit firm’s specialized resources to meet your needs, now and in the future.
Everyone enjoys a good surprise now and again, except when it happens late in the audit process. An effective relationship with your audit team includes timely and proactive communication of emerging business and accounting issues to avoid surprises.
- Please, just make it stop.
One of my favorite Jerry Clower stories includes the line, “Just shoot up here amongst us, one of us has got to have some relief.” Is that how your accounting staff might describe the audit process? No doubt an annual audit will require some disruption of your day-to-day routine. However, a well-planned and executed audit should be focused on the significant risks of material misstatement and will minimize those disruptions.
- No, but …
“No” is often the easy answer from your auditor. The differentiator is often in the options that are offered after the no. The right expertise at the table will help you address your business and financial issues and will assist you in assessing your alternatives.
- The auditor’s auditor.
Your audit firm is audited every three years by one of its peers and, if they serve as auditors for SEC registrants, at least every three years by the PCAOB. Obtain copies of the most recent PEER review reports and PCAOB inspection reports to understand the findings and how the firm is addressing any issues identified. In addition, the quality of benefit plan audits has been a significant focus of regulators of late, and you should inquire as to how any identified issues been addressed.
- Bill and duck.
The no surprises point above also applies to audit fees. We call this “certainty in pricing.” In some cases billing by the hour may the best answer. A quality audit, however, includes early and timely fee discussions so you’re comfortable with the value of the services relative to the fees.
- How’d we do?
Is your auditor focused on continuously improving the audit process to ensure your expectations are met and exceeded? Conducting after-action reviews with management and the audit team shortly after the audit is completed is an excellent process to capture the lessons learned from the audit with the goal of improving future performance.
In addition to the above considerations, you can find variety of assessment tools online such as the Audit Committee Annual Evaluation of the External Auditor assessment tool available from the Center for Audit Quality.
A high-quality audit is a valuable management tool, as well as source of confidence for your company’s stakeholders. Choosing an audit firm wisely is an essential first step, but be sure to raise these important issues with both new and existing providers. Firms that already employ these best practices will be best positioned to provide you a high-quality audit.
For weekly insights into enterprise complexity, please sign up here: