Companies and organizations need audited financial statements for various reasons. An external third party — a lender, potential investor or regulator, for example — might require an audit. Management or the board of directors also could request an audit internally.
An auditor is engaged to offer an opinion as to whether the financial position and results of the operations are fairly stated and free from any material misstatement. In addition to the audit opinion, though, there are many other benefits of an audit.
During the course of an audit, the auditor is required to develop an understanding of the company’s internal controls. In the process, auditors could develop recommendations on ways management can improve internal controls to assure accurate reporting of information and safeguarding of assets.
The cost of an independent audit varies depending on the size of the business, the geographic area in which the business is located and the complexity of the industry in which the business operates. An audit fee is based on the expected time it will take an audit team to complete its work.
So how can a company receive an audit in which the benefits exceed the costs? Here are three factors to consider:
Engage the right auditor: It’s important to be comfortable with your audit firm, allowing them to become a trusted advisor while maintaining independence. It’s critical to find an auditor that constitutes a good fit for your company. A company working with a large auditing firm might not receive the attention or needed advice. A company working with an auditing firm that’s too small might not receive the level of specialty or expertise required to perform the audit effectively and efficiently. Build a relationship with your auditors that allow them to identify and verify what’s appropriate with your business. Communication, expertise and a good business relationship are key to the audit experience.
Develop and set expectations with the audit team: Regardless of whether this is the first time your company has received an audit or not, it’s important to schedule at least one meeting in which the company’s audit contact and auditor discuss planning and fieldwork. This meeting should set expectations for the audit team and cover the details of any work to be performed prior to year end and during fieldwork. Be inquisitive, seek to understand the audit and express any concerns beforehand. Clear and active communication will go a long way in reducing unmet expectations.
Prepare for the audit: An audit’s engagement fee is determined in advance based on expected cooperation, preparedness and accuracy of the financial information provided. It’s essential the company and audit team take appropriate action right from the start. Inefficiencies and additional costs can quickly be incurred when the company’s personnel are not prepared for the audit. The company should appoint one employee to be in charge of audit requests to assure these requests are met in a timely fashion and the information provided is accurate and complete. This reduces the resources and time required by various personnel to handle information requests and streamlines the communication process. Setting a specific timeline for the preliminary stage, fieldwork procedures stage and wrapup of the engagement will go a long way in controlling cost and managing expectations.
An audit doesn’t have to be a stressful event or seen as an unnecessary cost. There are many benefits to an audit. Having an independent public accounting firm provide an opinion about the accuracy of financial statements can be used in many ways. Benefits include management reports, related industry information and any operational issues auditors might present.
By working closely with auditors, developing a specific plan, managing expectations and communicating throughout the process, a company can enjoy the benefits of an audit rather than simply pay what’s seen as the costs.