How to Choose an Auditor: Three Key Factors to Consider
Choosing an auditor is like choosing a spouse. The expectation is that the relationship being entered into will be long and beneficial for both parties. Sometimes auditor introductions are “arranged” through third parties. Other times the introduction is a response to an RFP. And because the stakes in choosing an auditor are so high, maybe the analogy should be “choosing a spouse circa 1955”—when a failed marriage included a public shaming of the principals.
For public and private companies, a failed auditing relationship is serious, with the repercussions potentially affecting business, brand, and value. Getting to know a potential auditor well before entering into the relationship is essential—it is a window into how the relationship will hold up under stress (e.g., during the audit). So, when making this decision, what really matters? Given that the tasks that the auditor must complete are prescribed by law and custom, here are three key factors you should consider before you hire an auditor: People. Like most work in professional services, the partner who sells the work is not necessarily the person who does the work—in many cases it would be an inefficient use of his time. Even so, there are partners who actively own a client relationship and there are those who disappear to sell other work. You should meet the people who will actually conduct and manage the audit, not just the partner in charge. You should get a sense of their strengths and weaknesses, which should complement those of your finance team. Try to gauge their overall aptitude and intelligence. Are these are people you trust and want to work with? If not, keep looking. Transparency and Communication. An audit firm should be completely transparent in describing the processes it follows and the quality-control procedures it employs to ensure that its work is complete and correct. If an audit firm isn’t transparent in telling you what to expect and when to expect it, that
https://iqdeals.co.za same firm likely won’t be transparent in its interactions during the audit. Communication is just as essential. Can the audit partner articulate an understanding of your company’s chosen risk tolerance and how that tolerance is manifest in your company’s accounting? Will small anomalies in the audit be surfaced and communicated before they turn into larger issues? Is the auditor helping you understand what questions you should be asking? Confirm that the auditor will help your team understand what it needs to do to prepare for the audit. Industry Expertise. Are the audit partner and team asking questions that reflect a deep understanding of your business, or are they simply reciting generic questions that could apply to any company? Be sure to review references from other firms in your industry one more time. Any research that the audit team must conduct to get up-to-speed on your industry will happen on your dime. Wouldn’t it be easier to hire an audit firm, and an audit team, that already understands your industry? Don’t underestimate the value of a clear understanding of your business environment. In sum, the right auditor can be a key contributor to your company’s success. Traveling back to the marriage analogy we began with, it is important that selection of an auditor be an affirmative decision rather than a passive one. If the firm your audit committee is pushing for doesn’t pass your personal smell test, then as CFO, you need to say so (in the most politic way possible, of course). Any auditor can tell you if accounting policies are being followed and quality control standards are being enforced. A good auditor is an intelligent advocate for the success of your firm.
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