During the first and last month of the year, we generally field more calls and emails for new audits than at any other point in the year. When we speak to clients, we always try to see things from their perspective to know the pain points. We also understand that many of our clients have never been through an audit and don’t know where to start, what to ask, or the most common question of all, how much it will cost. It got me thinking, finding an audit is much like buying an engagement ring.
As a young man, not being educated about jewelry or diamonds, the only places I knew to shop were the chain stores at the malls. You know the ones you see at every mall. If you go into one of the stores, the person helping you may be knowledgeable, but more of a salesperson rather than an expert. The diamonds they show you are big, less expensive, but ultimately the quality is sub-par. There are carbon deposits and the color of the diamonds are more yellowish than clear. After visiting these stores, you look to the online route, but honestly, with a purchase that big, it’s not something you want done over the internet, you want face-to-face interaction and observation of the product.
The next stop are the luxury stores, because you only want the best for your future wife right. You go to Cartier, Tiffany’s, Harry Winston. The diamonds you look at are amazing! The specialized lighting makes them look even more spectacular. You’re still dealing with a salesperson…although a very polished one. You see the price tag of the high-quality diamond and your eyes bulge. You make up an excuse that you are going to shop around. But really, you can’t afford what they are selling, because more than the diamond and gold, they are selling their brand name.
Your last stop is a local store that was referred to you by a friend. Rather than a salesperson, you are talking to the owner who purchases the diamonds. He works with your budget, and brings in diamonds just for you to look at, knowing its a big purchase. The diamonds he shows you are the within your size and price preferences. What you get is a customized service by the most knowledgeable person you met, for exactly what you wanted to pay.
Why is this like finding an auditor?
Like when you diamond shop, there are generally three or four levels of auditors. You have some firms that service only private companies (non-PCAOB registered firms) and the audit services are generally a smaller portion of their organization. These are like the chain mall stores, you often get the most common service/product without that next-level expertise (there are exceptions of course). In addition, their audits can’t be used for going into the public markets, meaning, if you have high expectations for your company, they can take you only so far.
Then there are firms that are more of an online presence. There aren’t many of these, but like shopping for diamonds on the internet you may never know who you are working with or what your getting, but the price seems right. This is not a good option for anyone. Just remember, you get what you pay for and if a price seems too low, it’s probably too good to be true.
Then there are the Big-4 of the world and other large national firms. As a colleague from the Big 4 once told me from a middle-market area, they generally won’t touch an audit less than $75K, and that's almost like doing someone a favor. Ultimately, like when you go to Cartier or Tiffany’s, you are paying less for the actual expertise of the day-to-day workers, less for the gold and diamonds and more for the name. However, the final work product is high-quality. There is a reason you know the names of theses firms, it’s because they spend many millions of dollars to sponsor golfers, award shows, etc…just so you know who they are. Where do you think that budget comes from….higher prices.
For the vast majority of companies requiring an audit, neither of the above three tiers will be the best fit. Rather, the best fit is usually a smaller regional firm (like dbbmckennon) where the partner in charge is the main contact, and they can talk you through the process of what you need and don’t need. The expertise and continuing education in these firms must be constant because they have no technical expert at their headquarters in some hub city to fall back on like the large national firms have. These firms also tend to be nimbler in timing based on the needs of their clients, unlike large firms who often send out teams for weeks at a time to one client. Using a small regional firm is like going to your local recommended diamond shop, the client gets exactly what they need, for a price that is fair.
The most important thing in vetting the tiers of auditor, is taking the time to have a phone call or a face-to-face meeting and comparing what you are being told. Talking through not just the historical numbers and issues, but rather what the future holds is a key to this process. Often, the first question we ask is not, “tell me what you have done historically”, but “tell me where you are going.” The “why” is always more important because it helps us know now how to serve our clients better. All this is especially true in the Regulation A+ and Regulation Crowdfunding world where future plans can severely change what the requirements will be.
Happy 2018 audit shopping everyone.
dbbmckennon is a full service CPA firm with offices in Orange County, San Diego and Santa Monica. We specialize in companies filing with the SEC and utilizing equity crowdfunding through Reg A+ and Regulation Crowdfunding. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.