Auditing the Auditor: Questions to Ask Before and After an Audit

Managers of small and mid-size businesses and nonprofits often hire external auditors to ensure the integrity of the financial statements they provide to investors, creditors and other outside parties. As management, you are ultimately responsible for your financial reporting, so it is critical to be certain of the quality of the audit process you rely on by evaluating the qualifications and performance of the audit team, the quality and candor of the auditor’s communications, and the auditor’s independence and objectivity.

Not all auditing services are created equal. It might be tempting to engage a low-cost provider, but the adage, “you get what you pay for” applies. An inaccurate or incomplete job could leave you exposed. A quality firm will assure you an accurate, timely, comprehensive report – and can deliver valued-added benefits low-cost providers cannot or do not provide, including communicating opportunities for operational improvement, offering frank and informed responses during face-to-face meetings, and delivering access to sophisticated guidance and specialized services.

Use the following questions to determine the quality of an existing or prospective external auditing firm.

Pre-Engagement:

  • Did the audit team discuss the audit plan and the organization-specific areas of financial reporting risk it would address? Does the audit plan consider your reporting timeline and are you and the auditor in agreement on the applicable significant risk areas?
  • Does the audit team understand your organization’s business, industry and how various economic environments and trends impact your business?
  • Does the firm have the industry expertise and geographical reach to serve your organization? How deep is the firm’s industry talent pool outside of the assigned team?
  • Did the firm demonstrate its independence and describe the safeguards in place to protect its independence?
  • Does the firm have a process for overseeing audit quality, to ensure that standards are met and methodologies are followed? How extensive is the review of the audit file prior to report issuance?
  • What are the results of the firm’s most recent peer review examination? What were the findings and how did they respond? Was the firm’s peer reviewer reputable?
  • What do the audit firm’s references say about the audit team? Exemplified behaviors in the past with similar clients best illustrate the performance you can expect.

Engagement Evaluation:

  • Did the audit meet the perfor­mance criteria as reflected in the engagement letter and audit plan? If the audit plan was not met, did the audit team discuss the reasons with you timely?
  • Did the audit provide details on the quality of your organization’s financial reporting, including whether your estimates and judgments are reasonable?
  • Was the auditor able to compare your accounting policies with industry best practices? Did he or she inform you of any current and upcoming changes to accounting principles and auditing standards?
  • Did the lead auditor maintain open dialogue with management and were communications always comprehensive and understandable?
  • Were sufficient and appropriate resources dedicated to the audit? Did your team consist of experienced auditors and was the partner visible during all stages of the process? Were specialized resources required and employed?
  • Was the cost reasonable for the size, complexity and risks of your organization?
  • Did the auditor ask for feedback on the audit and how did he or she respond to your feedback?
  • If there was a change in your audit team from the prior year, did the lead audit partner explain the transition and were the reasons for the change acceptable? How frequently are you experiencing new faces on your audit team?

The audit process is more art than science. The experience, judgment and even personalities of your auditors determine the quality of the audit you will receive. HBK has created an environment of audit quality through our staffing decisions, audit methodology, technology investments and quality control systems. And we support our clients and prospective clients in the conduct of thorough assessments of our work and our firm so they are comfortable they are getting the value we promise. We encourage all organizations to do the same to ensure the independent auditors they engage are qualified, candid and objective, and their reports will be accurate and comprehensive delivering the value and quality you deserve.

About the Author

Sean is a Principal in the Pittsburgh, Pennsylvania office of HBK CPAs & Consultants and has been a Certified Public Accountant since 2004.  He joined HBK in 2011. Prior to joining HBK, Sean was a manager at Deloitte and at another regional accounting firm in Pittsburgh.

Sean has experience performing and supervising assurance services for clients of various types including publicly-traded companies, privately owned businesses, international businesses, development stage entities, governments and not-for-profits. The main industries he serves include charter and approved private schools, religious organizations, residential and community-based not-for-profits, oil and gas producers, software developers, manufacturers and distributors, construction contractors, architectural/engineering (A/E) firms and service organizations.

Sean has extensive experience with internal controls based on his broad experience and fraud examination background. He consults all of his clients on proper internal controls and has helped numerous clients identify and remedy control deficiencies in a practical and useful manner. In addition to traditional audit, review and compilation services, Sean is a firm leader in providing specialized assurance services relating to service organization controls (SOC) reports, Federal Acquisition Regulation (FAR) overhead rate audits, asset-based lending agreed-upon procedures and custody examinations for registered investment advisors. Sean is also a member of the firm’s Assurance Practice Committee.

Sean completed the PICPA 2014-2015 Next Generation Leadership Program and was the recipient of the 2015 PICPA Young Leader Award.

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