By Jim Wong, CPA | June 28, 2017

This week we have guest blogger, Raj Pillai, CPA, Senior Manager of Business Development for Brilliant Management Resources, taking over for Jim Wong to discuss ways to best manage external auditors.

Anytime an external audit team comes in to audit a business, there is a lot of due diligence needed to be completed on the accounting team’s part – typically with the accounting leader at the helm.

Generally speaking, it becomes a hectic time for both the internal accounting team and the external audit team hired to do the review. And as with most relationships, there comes two sides to every story.

As someone who has been on both sides of the interaction, as an auditor and a client, I can attest to certain frustrations experienced on both ends. As an auditor, I would get frustrated when I had to “go back” to the accounting team asking them for more information time and again. As a client, I would get frustrated when the auditors wouldn’t address my questions the first time around.

Just as managing an external team of any kind has its challenges, collaborating with external auditors has its hurdles, as well.

Even if you consider the audit team as a “necessary evil,” the truth is that they are there to do a job just like you are—and a necessary job at that. So, it’s best for accounting managers and leaders to make the relationship with external auditors as cordial and enjoyable as possible. In fact, if you don’t, there can be serious consequences. In recent history, there have been various litigations against companies who either poorly managed external auditing teams or experienced outright fraud.

Since I have the unique experience of being on both sides of the accounting coin, I thought I’d pass along some tips to best manage an external audit team. Take a look at the 5 Ways Accounting Leaders Can Keep Auditors Happy below.

1. Make them comfortable.
This doesn’t mean you have to have ice cream and cookies delivered to the audit room every day. However, you should ensure that when auditors are on-site, your staff accommodates them in a professional manner. Do not give off the impression that you don’t have time for the auditors. That can backfire quickly. Rather, block off time on your calendar to dedicate to the auditors. Often times, you can gather an idea regarding what your time commitment will be solely based off their request list, also known as a PBC. If you are the Controller, encourage your staff to make time for the audit, as well. The easier you make it for the auditors, the easier it will be for you and your team. If you are unable to give them a 100 percent focus and commitment, the likelihood of them coming back to you later with requests rises significantly. At that time, you may have other priorities at hand that you would have to drop in order to address the auditors’ needs. This could have negative consequences and negative exposure for you.

2. Know your areas and encourage your team to do the same.
One of the reasons that audits go longer than budgeted is due to the accounting team’s lack of functional knowledge regarding their areas. This means more hours for auditors and likely a larger bill from them to you. Generally, most over-budget audits can be attributed to lack of preparation. Rather than perform the tasks the way you have been shown for years, you may want to take a step back and ask yourself “why” you are doing them. Why ask why? Because, the auditors will surely ask if you don’t. When I was an auditor, I spent the majority of my time with staff who knew how to do their jobs, often times really well, but not necessarily why they did them. If you are nervous and unsure about your areas, the auditors will feel the same way about your work, and it will show through on your documentation as well as your discussions.

3. Get the PBCs ready.
One of the most frustrating moments for an auditor is the lack of available documents requested, especially on the first day of their visit. If you, as the leader of an accounting team, are not tracking the auditors’ request list on a day-to-day basis, you will likely work much harder on the latter part of the audit than you need to. The time to gather and prepare documents and schedules for the auditors is not when they are on-site, but rather well beforehand. As the leader of your team, you may want to ensure that the auditors inventory the documents and send you an updated tracker each day. Additionally, a great practice is to mark the request number very clearly on your emails or your documents when you provide them.

4. Email less discuss more.
Do not use email as a tool to respond to auditor requests. While you can answer requests by email, it is not best practice to ask questions and receive answers by email. As an audit client, you should expect calls from your auditors when they are on-site. Additionally, you should leave your doors open and be approachable to them in person. The more verbal discussions you have regarding your areas, the easier time you will have in providing them confidence that the documents you have prepared or reviewed are properly completed.

5. Challenge them in a diplomatic way.
As a client, one of the most frustrating moments for me when interacting with an auditor was getting asked a question you believe the auditors should already know the answer to i.e. because the information could be found in the previous year’s audit. While this may be the case, exercise both patience and caution. Please keep in mind that some of the auditors you are involved with are on their first audit and are utilizing certain basic areas as training tools. They are often times learning and auditing at the same time. This is not easy for anyone. It is akin to a lawyer running a prosecution while learning the law in tandem. That is not to say they are not well-trained. While they could have received some of the best training out there, they might not have had a chance to apply their training to real life situations quite yet. The benefit is that they will learn soon and fast enough. The more you educate them up front, the better they will be at this in the long run. That said, if you get the sense that an auditor should go back and brush up on a prior conversation or a prior year’s documentation, you should absolutely encourage them to do so rather than spending additional time explaining more basic areas to them. A lot of my learning was done through clients asking me to go back to prior year’s documentation or asking me to re-learn certain accounting rules. A little back and forth is never bad during an audit.

Have some other tips on keeping external auditors happy? Comment below and let us know!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.