Most businesses engage an external auditor because they have to – there is a business, industry or government regulatory requirement to confirm that financial statements are free of material misstatement, whether due to error or fraud. External auditors
For some firms minimising cost may be a primary consideration. It is important for firms to balance the cost with the quality and extent of service provided. Whilst there may be pressure to deliver audit services at a competitive price, this is often a short-sighted approach that ignores the real value of an audit performed by an experienced external auditor.
To begin with, an external audit should deliver much more than business compliance. To really add value to the business relationship, auditors must bring the right combination of qualifications, experience, technologies and approaches to the audit process.
So, what should you look for when hiring an external auditor?
If your audit is to comply with ASIC requirements, it must be performed by a registered company auditor. ASIC maintains a Professional Register of registered auditors and registered audit companies. Visit https://asic.gov.au/online-services/search-asic-s-registers/professional-registers/
It does make a difference if your auditor has experience within your industry. This will help to ensure that the audit is performed efficiently and creates the opportunity for the auditor to add value in translating their analysis in the actions that your business can take.
To really add value, external auditors should be using technology to ensure that the audit process is as efficient as possible, from data collection to analysis and reporting. Data analytics is increasingly important in providing external audits and effective auditors should be able to use data to provide feedback on potential improvements in business processes and performance.
Effective external audit is a lot more than simply analysing data and providing a report. You should consider whether your auditor possesses the necessary communication skills to engage in a proactive way. Your business should look for an auditor who can deliver challenging messages in a practical way, share insights and offer recommendations for improvement.
Any auditor that you choose should be able to demonstrate how they comply with external professional standards. All registered auditors are required to comply with comply with the fundamental principles of independence, integrity, objectivity, professional competence, due care, confidentiality and professional behaviour as outlined by ASIC and AUASB.
6. Fee for service
There’s no doubt that, when choosing an external auditor, the fee for service is often a key factor in making the decision. However, if you’re looking for a registered auditor to add value beyond compliance, you should consider the extent to which the auditor is able to provide analysis, assurance and business advice. When comparing quotes, ensure that you are comparing like with like. Perhaps the quote with the higher fee will add significant value beyond compliance?
Case studies, testimonials and awards can provide a good indication of an audit firm’s reputation. The decision making process should include questions in relation to size of firm, experience of the directors or partner, the number of audits performed and the type of client that they work with.
Key questions to consider
When receiving a proposal for a prospective external auditor, you should ask the following questions
- Does the auditor have experience working with businesses of similar size, industry, and complexity?
- What specific expertise do they bring to address any challenges your business might face?
- Are the auditors certified by a reputable professional body (e.g., ASIC, AUASB, CPA, CAANZ)
- What ongoing professional development and training programs do they engage in to stay up-to-date with industry standards and regulations?
- How does the auditor plan to conduct the audit? What methodologies and tools will they employ?
- Will they customize their approach to align with your business’s internal processes?
- How do they ensure a comprehensive and thorough audit while minimizing disruption to your operations?
- Who will be leading the audit engagement? What are their qualifications and experience levels?
- Will the same team be dedicated throughout the audit, ensuring consistency and continuity?
- What is the proposed fee structure? Is it competitive and transparent?
- How does the auditor justify their fees in terms of the value they will bring to the business?
Conducting a thorough evaluation and possibly holding discussions with shortlisted auditors can provide deeper insights into their compatibility with your businesses needs and culture.
Why specialist firms provide higher quality audits
External audit is increasingly specialised as a profession. Regulatory requirements have made it quite difficult for sole practitioners to adequately manage all industry professional requirements. Increasingly, external audits are performed by firms that specialise in this service. Research has indicated that audit quality generally increases with audit firm size, primary due to the large amount of accumulated industry experience and knowledge in larger firms.
National Audits Group are specialists in navigating the rules associated with the management and auditing of business financial statements. The days are gone where generalists can effectively advise audit clients. A broad range of experience and skills is required to provide the best advice.
To discuss how National Audits Group can help your business, contact our team at Ph 1300 734 707.
Nicholas Kannan – Audit Manager, National Audits Group | www.audits.com.au
- Engaging an external auditor – What should you look for? - 14 August 2023
- When does my business have to do a financial audit? - 5 September 2022