An audit has long been regarded as a necessary evil, a routine project commonly completed for a legal or statutory requirement, such as a covenant in a loan agreement. However, with the recent recession lingering in our rearview mirrors and some financial indicators pointing to a stagnant economy for years to come, it has become increasingly important to derive value from all of your investments. Regardless of the fact that it is an annual requirement, the audit is one investment that business executives should not overlook.
The result of an audit will be the all-important opinion letter, which verifies that a company’s financial statements are presented fairly. Deriving value throughout the audit process on the road to that opinion begins with establishing a good audit relationship. The better your relationship with the audit firm, the more benefits you can expect to realize.
As an executive, ask yourself the following questions about your audit team:
- Do they contact me throughout the year to avoid year-end surprises?
- Does audit planning begin in advance of year-end?
- Is fieldwork conducted without frequent delays?
- Am I provided with explanations regarding the reason for adjustments?
- Does the team indicate anything that can be done in the future related to those adjustments?
- Am I provided additional feedback as part of required communications?
- Are mutually agreed upon deadlines met?
Establishing a good audit relationship leads to much more than just an audit opinion. Executives should expect more than having the audit team showing up for one week out of the year to vouch, confirm, and occupy the valuable time of their staff. Beyond the opinion, the audit should offer:
- Enhanced owner/investor confidence
- Movement toward best practices through feedback and management letter comments
- Enhanced interim reporting when significant transactions are addressed throughout the year
- Possible limited deterrent to fraud
- Business planning advice
Audits can be a beneficial business tool for executives and should be viewed as an opportunity to improve management and financial operations. They can increase accountability and improve transparency. A strong and open relationship is the starting place for maximizing an investment that has the potential to provide valuable insight for a company outside the audit itself.
Craig B. Evans can be reached at Email or 215.441.4600.