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What makes a good financial statement audit?

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James Hadfield

James Hadfield – Audit & Compliance Partner

In the current climate of corporate failures and fingers pointed at the audit profession, this question has perhaps never been more relevant. 

How about “A robust examination of the financial statements in accordance with the applicable audit regulations delivered by a high quality audit team who exhibit both strong technical skills and a healthy level of scepticism.”?

Of course this description is completely valid and should be the minimum expected of anybody signing an audit opinion. It’s required by our professional standards after all.

But that’s not what this article is about. 

Let’s assume the description above is a given. In reality it’s certainly not true in 100% of cases but any established firm will, in the majority of cases, deliver this or something close to it. If not the audit regulators would have something to say.

So, assuming this is a given, what else makes a good financial statement audit? What makes a better audit? If I’m an SME business owner thinking about a new auditor, what else should I be looking for?


Continuity of staff

A returning audit team means that they already understand your business which avoids the need for repeating many of the same questions every year. They understand your business and they know how to work best with your team. It’s not unusual for audit seniors to be promoted or leave the firm for pastures new, but if you’re getting a different person every year this might be a red flag.

Regular contact

How often do you see your auditor, especially the partner and manager? Do they make the effort to meet in person or pick up the phone? You should expect this as well as regular content around technical matters through e-shots, articles and training sessions.

Do you “click”?

This is quite intangible but getting a feel for whether you “click” with the team is vital, after all you’ll be working closely with them throughout the audit. The lead partner may front a proposal, but ask to meet the assigned manager who will be your main contact on day to day matters. Make sure key members of your finance team meet them too and ask for their opinion.

Right size for you

Are they of a suitable size to work with your business? If you’re going to be one of their larger clients make sure you’re comfortable they can resource the work. If one of their smaller clients be sure they’ll give you the right level of care and attention after you sign their engagement letter.

Understanding your business

The best audits for both quality and efficiency are performed when the auditor really understands your business. Do they work with many other companies in your sector? Did they ask a lot of questions about you during the tender process or were they more interested in speaking about themselves? 

Proper planning

Quiz them on their approach to planning the audit – a good firm will spend serious time and effort here making sure the audit plan is properly tailored to your specific circumstance. You should expect a tailored request list so you have time to prepare for their visit and pull documents in advance. Dates and deadlines should be agreed with you up front and taken seriously.  If they just want to roll up sleeves and dive straight into testing, that’s a red flag.

No surprises

Whether audit problems or unexpected fees, nobody likes surprises. You should expect clear and timely communication throughout so that issues can be resolved in good time and extra fees can be managed and mitigated to the best extent possible. If you only ever hear about the issues at the very end, something isn’t right.

Technology

To be clear, the best firm isn’t the one with the most expensive kit, however you should expect them to be using technology to maximise the service experience. Most good firms now use audit software to perform their work and paper files are very much a thing of the past. Data analytics is an emerging area in audit and can be very effective, however don’t get too lost on this – every audit is different and a data-heavy approach is not always the best approach. Also don’t forget communication technology – how closely connected are the audit team in the field with the manager and partner back in the office? 

Listening

Do they ask questions and really listen to you? For example is the timetable set around what works best for you or for them? Do they ask for feedback at the end of the audit and importantly do they act on that feedback to improve the experience in future years? A good audit firm will put the client at the centre.

Cost

While a quote needs to be competitive, beware just plumping for the cheapest quote. Remember the hidden costs of an audit – the time that your finance team devotes and the “hassle factor” they experience. A good audit will keep these to a minimum so be prepared to pay a bit more in fees if it gets you the right firm. Also think about what value you’ll get out of the process too in terms of feedback on your business. Although auditors are required to provide feedback there can be a significant difference between the perfunctory bare minimum and something more thoughtful and considered. 

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James Hadfield

Partner

For more information on what makes a good financial audit statement and how to improve your own, contact James Hadfield.