There are various reasons to retain and auditor: required under SEC regulations, for a potential merger or acquisition, sale of the Company, bank loan, etc. Often times executives find themselves having to engage an auditor for the first time, but don’t know how exactly to qualify the quality of auditor being interviewed. Here are 10 questions to ask an audit firm before you engage them.
- Does your firm have significant experience in my industry? Why – you always want to engage an auditor that is familiar with your industry.
- Have you ever been sanctioned by the SEC/PCAOB/AICPA and are you in good standing with all regulatory entities? Why – Being sanctioned by a governing body is a red flag for poor work quality or unethical behavior.
- What type of staff should I expect to be assigned to my engagement and what are their experience levels? Why – Big firms who have significant turnover often send inexperienced staff to the client unsupervised. This creates a situation in which a Controller or CFO end up teaching the staff how to audit. Most Controllers and CFO’s appreciate more seasoned staff that know what they are doing.
- What differentiates you from other firms? Why – Most audit firms are similar in nature at their core, but they do have defining characteristics. Look for a firm that line up with your needs and wants. Be cautious of firms that have prices well below market norms.
- Do you believe the size of your audit firm can accommodate the scope of the work? Alternatively, is your audit firm too large or small for the scope of work needed? Why – You want to engage an audit firm appropriate to the size of your Company in order to gain the most value. You wouldn’t want to engage a Big 4 firm for a small private company needing an audit for a bank loan, just like you wouldn’t engage a local audit firm if you are an international conglomerate.
- How does your firm add value to your audit services? Why – Auditors cannot take the role of management or act in a consulting manner. Thus, it becomes difficult to provide additional value beyond the audit services. However audit firms can and should make recommendations on internal controls, review fraud risk areas and report on finding if issues arise, and be responsive. These are just a few ways auditors can add value to their audit.
- Do you conduct risk based audits and how can that help to achieve a competitive engagement fee? Why – If they don’t they are not within professional standards nor providing services that are in your best interest. You will likely end up overpaying for the services.
- Do you have a PCAOB report that can be viewed online? Why – CPA firms who work on publically traded companies have their own watchdog, the Public Company Accounting Oversight Board ("PCAOB"). Depending on the size of the CPA firm, the PCAOB reviews the quality of the firm's workpapers every 1-3 years. The PCAOB makes comments on the quality of the audit firm’s work. The fewer comments the better. For example dbbmckennon received no comments on our most recent PCAOB report.
- What kind of reputation does your firm have around the community and can you provide references? Why – References are a good way to determine if the audit firm can back up what they say.
- How responsive can I expect your firm to be? Why – If you are a small company engaging a large audit firm, you may not be as important to them as their bigger clients. Look for a firm that will respond to you within 24 hours of any issue arising, can adhere to reasonable timetables, and will give you the attention you deserve no matter the size of your company.
For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.