An independent audit builds public confidence towards the integrity of financial statements, and in nurturing the right corporate behaviour of SMEs in general.
External audits are an invaluable tool for companies.
Apart from the relevant legal obligations, and commitments to ensure tax compliance, an audit can bring financial discipline to your business. An external audit also enhances credibility to the financial statements of SMEs and provides a greater level of assurance to banks when assessing applications for credit facilities. Finally, an independent audit builds public confidence towards the integrity of financial statements, and in nurturing the right corporate behaviour of SMEs in general.
So how do you go about making sure that you get the right firm to take on this important task?
It is understandable that cost would be considered an important factor when choosing an auditor; but cost should not be the only, or indeed, principal factor. For all kinds of companies, including SMEs, audit failure is a serious matter, 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). If you have a good working relationship with the engagement partner, the audit will probably be smoother. The staff used in the audit will also be critical, and whether a firm ensures that on-job auditors are qualified and experienced is another factor to consider.
Having confidence in the people who will be carrying out your company’s audit should, therefore, be at the top of your list of selection criteria. Reputation is clearly a key initial indicator. However, keep in mind that the person who has secured the service is usually not the one who performs the work. In this case, it may make sense to meet the people who will be responsible for managing and conducting the audit – rather than just the partner in charge of securing new clients (including your business). Find out more about their strengths and potential weaknesses. Will their skills and personalities integrate efficiently with those of your financial or management team? Are these people you feel comfortable working with? Do you feel you can trust them? Can they guarantee that they have the capacity to handle your audit within the timeframe and deadlines you require? If the answer is ‘no’, then this firm may not be the right one for you.
You need to feel confident that the audit partner you have in front of you is showing a genuine understanding of your business and industry. Are the questions being asked generic? Are they relevant to the size of your firm, the industry you work in, and the way you operate your business?
4) Audit approach
Without being too technical, it is also worth asking the auditor about their audit approach. Does the audit firm embrace technology and have tools to increase audit efficiency and reduce audit cost? How does the auditor assess the internal control framework and what reliance will be placed on the strength of the internal control environment? How does this reliance impact the audit fieldwork testing? Does the audit firm have the expertise and technical resource to audit environments that are highly reliant on IT systems? What type of feedback does the audit firm provide to its clients on any weaknesses that it encounters and does it provide recommendations related thereto?
When sourcing your future auditor, you should also analyse how the prospective audit partner tackles questions relating to openness and transparency, especially when it comes to providing information about the audit process and quality control. Remember that you must have all the important information at your fingertips when you need it. Moreover, the right auditor should be able to communicate to you and your team with clarity so that you will know where and how to improve. The first test for the auditor would be to help your team understand what it needs to do to prepare for the audit.
As we have already seen, your interview with prospective auditors and their answers to the right questions will point out the way for a successful selection. At this stage, it would also be worthwhile enquiring whether the audit firm has expertise and knowledge in non-audit areas, such as taxation, VAT and business advisory functions.
With the right auditor, your business can move forward, with more streamlined processes in place, complete compliance, and adherence to detail. You wouldn’t want to deliver anything less to your clients, so don’t settle for anything less for yourself, especially when the stakes are so high.