By Colin Hannifin, CPA, Business Assurance & Advisory Services Manager
What can your business do to contain audit costs?
I was at a CPE event late last year. The audience was a mixture of auditors and industry accountants. The topic of auditing timing came up and an industry CFO in the audience said she loves getting started with her financial statement audit early. When the instructor asked why, she said –The sooner we start, the sooner we finish.
A lot of organizations go through annual audits or reviews and consider the assurance work performed by CPA firms to just be another cost of doing business. But what is the true cost of an audit, and more importantly – how do we contain those costs?
The Audit Footprint
What is it?
The audit footprint is the impact an audit has on your organization. An audit starts with preliminary request for information and supporting documentation and continues with a constant stream of additional requests and inquiries that can be time consuming to fulfill.
The audit conversations and meetings, e-mail responses, and active work in providing support take time away from your daily responsibilities. Time spent interacting with the auditor, even if only 5 minutes, can mentally take someone out of their work for much longer. Psychologists call these “switching costs’
Constant switching between tasks can lead to mistakes, mistakes which are potentially more costly than any audit fee.
What can you do to contain costs?
A certain amount of interaction with your auditors is absolutely necessary and can never be avoided. But there are a number of things organizations can do to make those interactions as efficient and effective as possible.
Get in the mind of the auditor
Auditors do not want to find testing exceptions, and good auditors are not out to get you. They want schedules and support that meet the documentation requirements of the audit standards which they are bound to follow. If you provide them incomplete or confusing documentation, it will almost certainly generate follow-up questions that will unnecessarily eat up time. It is a good idea to perform a critical self-review of the schedules and documents you provide the auditor. Try to put yourself in the shoes of someone who is looking at the support for the first time. If questions come to mind during this self-review, the documentation should be augmented or additional explanation provided to help prevent further follow-up.
Be forthcoming about testing exceptions
If you provide documentation that you know will result in a testing exception, it is much faster to acknowledge and explain the situation rather than wait for the auditor discover it. When they discover it, they will typically request additional information. Many organizations at this point, desperate to avoid an exception, are inclined to throw all sorts of documentation at the auditor to see if anything “sticks.” After extensive back and forth and a lot of wasted time, you’ll almost always end up in the same place. This can be avoided with being up front about any unusual items or exceptions Your auditor should work with you to proactively identify the most efficient way to understand and resolve the exception.
Talk through questions on the phone or through a screen sharing call
A picture may be worth a thousand words, but a short call can be worth even more. When an auditor has a follow-up question, spending time to craft the perfect e-mail response can take the better part of an afternoon – and even then, the auditor might have additional questions. If you receive an inquiry from the auditor, and the answer is not straightforward, instead consider scheduling a call or a screen share. That way you can walk through the question – and any follow-up – together. Doing this, you can easily turn hours and hours of back and forth e-mails into a 30-minute discussion.
Be thorough in communications with the auditor
Auditors tend to be technology generalists rather than specialists. It is unlikely that your auditor will know the ins and outs of your technology platform and processes that you have adopted and work with every day. When communicating with auditors, it is important to think about what you are assuming they know. If your communications assume a detailed understanding of your specific tooling and processes, it might be good to explain these foundational concepts. When this is necessary, it’s probably a good idea to have a call or a screen share.
What does Keiter do to contain costs?
Every audit demands time from your staff, and the time your team spends responding to audit inquiries is time away from your core responsibilities. As a firm, we have made great strides in doing what we can to reduce the audit footprint on our clients, leveraging technology to work more effectively and efficiently.
Electronic Document Request Lists
The management and tracking of files requested by the auditors and provided by the client has long been a sticking point. Historically, this process lacked transparency of what has and has not been submitted to the auditor and has been filled with opportunities for miscommunication. It may not be unusual for a client to submit support and mark a request fulfilled only for the auditor to be unaware that the submitted support is meant to address that particular request. Sometimes, a client may provide several documents at once in the name of efficiency, and it’s up to the auditor to parse the purpose of the support. These situations are difficult for client and auditor alike and often lead to wasted time.
Recently, we began using new features in our longtime secure file transfer service, which allows us to create managed Request Lists within the service. This feature provides for automatic linkage between uploaded items and requested support as well as regular reminders for outstanding items, and elegant reporting, allowing the appropriate individuals to monitor the organization’s progress responding to requests. This will allow for a greater amount of transparency for both sides of the audit and allow auditor and client to work together more seamlessly and smoothly.
Screensharing/Video Conferencing to Record Meetings
As the COVID-19 pandemic has forced many companies – including Keiter – to quickly adopt to a remote work environment, investment in and the use of communication tools are of utmost importance. These tools, including video conferences and screen share technology, allow for clients and auditors to interact face to face, even when it’s not possible to be in the same room.
Additionally, the use of these tools, such as Citrix, GoToMeeting, or Microsoft Teams, allows for meetings to be recorded. This can ease the burden of trying to take thorough notes and providing supporting documentation. If a client approves, an auditor can record a meeting in which the client shares his or her screen, allowing the auditor to extract screenshots as a form of documentary support, avoiding further follow-ups.
Over the past several years, Keiter has worked to move its audits onto secure cloud-based systems. This allows the audit staff to work from just about anywhere. With offices shuttered around the nation, it can be hard to stay productive. The investment in cloud technology allows auditors to remain effective and responsive to client questions and requests, whether working in the office, at a client site, or from home.
Dedication to Innovation
Each year, the tools available for clients and auditors alike continue to advance and evolve. While clients may not want to be a proverbial guinea pig for every new application, they will benefit from a firm that continues to have its eyes on the future. The pace of change is immense, and an audit team that is capable and committed to keeping up will result in more efficient and effective audits. The world is rapidly moving beyond even paperless offices – and audits need to keep up.
Keiter continues to monitor, invest in, and evaluate new technological tools to determine how to best serve its clients. From the tools mentioned above to robotic process automation, artificial intelligence, and blockchain technology – just to name a few – Keiter remains committed to finding the best tools to allow it to serve its clients as effectively – and efficiently – as possible.
The costs and challenges of an audit go beyond the audit fees – but so too do the opportunities. When evaluating audit firms, a client needs to look beyond the dollar figure on the page and ensure that they are finding a partner willing to work as hard as them.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.