Picking your first auditor

What is your reason for wanting to be audited?

I would advise you to interview several auditing firms and ask each of them to give you a quote on the price they would charge for the audit,

It depends on what your perception is to the auditor, get an auditor that will add value (free education) to your company and is happy/available to be on the end of the phone if you need them. They also need to take the time to learn your business and has a constant staff that will retain that knowledge.

I had a big 4 auditor and had to get rid of, as every year they turned up with what I felt was their B/C team (as I was a small client in their eyes) and it was a new team as all the Junior staff had moved on, so I had to explain everything over and over.

Mid tier will provide better service,a lower cost point and access to a partner.

If you're listed or have VCT money, they may want a "known" name, so you could/may need to go tier 2 ( Grant Thornton).

I have had experience for the last 15 years and beyond dealing with what was the Big 8 that shrunk down now to the Big 4. I can provide a bit of insight into what you will probably find if you go with a Big 4 firm. They will not return any staff to the engagement year to year; if you are lucky perhaps one person will return. This means that you and your staff (on your dime) get to deal with a certain amount of inefficiency that is built into the Big 4 staffing model as they fail to retain knowledge about your account with the field staff personnel who actually spend most of the time in the field and in your offices asking questions and performing procedures.

It is likely that a smaller next tier firm will also have the same problem, but to a lesser extent; it is more likely that you will get some repeat staff year over year.

I also suggest that you enter into a firm discussion of the timing requirements you have for the issuance of the report, if any. Beware of getting caught in the crunch with all of the other year end clients. The bigger ones who pay bigger fees will get serviced first. If you have not negotiated and come to a firm agreement on the target date for the report, don't be surprised if the date starts to slip and slip and slip.

Also, negotiate the fee and be quite specific about the language that they use in the engagement letter. It is quite common that they will try to come back at the end of the engagement and claim that they were over budget on the engagement due to work you, the client, did not perform, or for extra work that they had to perform due to unforeseen circumstances. Have an understanding, up front, under what circumstances you would agree to additional billings. In many cases, you will not see any reason for the auditor to perform extra work; they do it anyway, then they want to charge you for work that you thought was pointless. It will be important to keep notes as you go along so you are prepared to negotiate at the back end as they prepare to give you the final bill.

Also, negotiate the fees and expenses add on billing. It is a standard practice that they take the amount of the negotiated fee and then add on a fixed percentage for office overhead or some such thing (this is how they pay for the staff lunches they go on and for the lunch they take you out on...you paid for it). Ask what that percentage is, and negotiate it down. Don't pay what they say their standard rate is; they are overcharging you for stuff you never get.

Finally, the true value will most likely come from the tax side of the house. Early on, I would ask the audit side of the house to have them introduce you to their tax staff. It is unlikely that the audit team is going to bring much to the table if you are running you business well; however on the tax side of the house, it is probable that they may have some ideas and strategies and approaches that can save real dollars for the business. That has been my very real world experience.

Cheers,

Robert S Meybohm, CPA

There are all kinds of audits, so it's important to know what your goals are first. An Accounts Payable Audit, for example, is a great way to recover funds, and with the right auditor, get some operational best practices out of it. We actually do this type of audit on a contingency basis, so it doesn't cost you anything if nothing is recovered. And, you are right, there are many benefits like streamlining your operational efficiency that make it well worth it.

As said above, if you don't have an outside pressure for Big 4, you'll get a much better price and recurring staff with a regional firm.

Do an RFP and find one that you're comfortable with. It's great to have a an expert to call and bounce ideas off. Just make sure they know your market.

I would recommend, as others have interviewing several auditors. Ask them to provide some details on their approach to new clients, new audits and first time audits. We have developed a methodology whereby we setup meetings with the new client on a periodic basis. Depending on the timeline for the needed audit, if it can be pushed out a ways, we set these meetings and provide to-do's on schedule preparation, interview key executives and others in the Company to help develop process documents and also help determine the most effective and efficient way for us to audit the Company. After several of these meetings and verification that the risky areas (as determined by the auditors) and the majority of the remaining areas schedules are complete (and accurate) we schedule the audit fieldwork. In doing this we have seen audit duration reduced tremendously, client satisfaction rise and our understanding of the client, and the Company's understanding of the process greatly improved.

My suggestion is that you reach out to folks that may have worked with the varies auditing companies. There may even be employees in your firm that have been engaged with some of them during their careers. Treat it like an evaluation of any project. Make sure you know what you want to accomplish. Get two or three firm to make a pitch and develop a list of pros and cons. Like all relationships, cost should be a part of the decision tree.

In addition to interviewing several firms, reach out to the people in your network. Talk to other business owners in the area, see who they are using, what they like and don't like, etc. When you are at charitable events and social functions, talk to people. Chances are, you'll be chatting with some of the principals and members of the local accounting firms. Another good reference would be your banker. If you go with a local firm, you definitely want one with a good reputation.