6

-point

audit checklist

At BerryDunn, we offer prospective clients the following 6-point checklist before they take the plunge and ally themselves — or not — with a new accounting firm.
 

1. Is there vision at the helm?
   When selecting an accounting firm for external audits and related financial services for your business, spend a little time with senior management or ask for their information in the proposal for your work. Go ahead: Invite yourself. Remember, culture comes from the top. Ask yourself whether the people you meet evince principled vision and human passion. Do they know what their firm stands for and where it’s going? Can you even get to meet or have a conference call with them? Will you remain important to them after the courtship is over?
   
   Is there a clearly stated Code of Conduct? If so, ask to see it. Really. Check for evidence of a focused, well-articulated strategy that incorporates quality in the firm’s audits — and indeed in all engagements. Does the firm’s governance structure have clear lines of responsibility, leading to the presence of skilled experts in the right positions to drive the quality agenda?
2. Are they vetting you carefully too?
   High-quality accounting firms are selective about their clientele — because they know that, just like a person, their reputation is affected by the company they keep. And vice versa. They need to make sure they have the skills and personnel with the right experience to do the job well.
   
   When selecting an accounting firm for your business, find out if there are rigorous, established client acceptance and continuance policies, including annual reviews. Is a partner in the firm asking to evaluate your company’s “principals and principles” to see how risky a client you’d make? This sounds shocking at first. But done right, assessing potential clients for risk — which combines robust technical knowledge with an analytical and inquiring mind — is a very good sign for you, both for the quality of the firm and for the quality of the services you’ll receive. You should be asked about your company’s financial strength, reputation, accounting policies and practices, management character, and business model as well as your products or services, competitors, and industry.
   
   When it comes to providing audit services in particular, the firm should evaluate you again, this time to make sure of its independence. (Conflicts of interest can arise, for example, if a family member of an audit firm employee is a shareholder or executive in your organization.) You should be asked about your financial and other relationships, investments, loans, and ownership structure.
   
   Finally, ask for a few examples of cases in which the firm has declined to provide a service to a given client, or even resigned the client as a whole, and why. If you get a blank look, you’ll know what to do. Leave.
3. Are the firm’s standards, tools, and technologies kept well honed?
   High-quality accounting firms have high, clearly stated standards and equip themselves with robust audit tools and technologies to make sure their standards are met.
   
   Ask a partner: Which people in the firm are responsible for meeting standards for professional practice, risk management, and quality control. The right answer? Everyone.
   
   Do the firm’s personnel confirm their compliance with these policies annually, and in writing? They should.
   
   Does the firm set its requirements well above those of the industry’s professional standards? (We do at BerryDunn. We think it’s a good idea.) Ask for the firm’s most recent peer review report, and see what it says.
   
   High-quality firms also dedicate significant resources to keeping their arsenal of audit tools and technologies complete and up to date, reflecting current industry best practice. Why? Because they know that well-honed tools and technologies promote robust documentation, reduce the risk of human error, and contribute to consistent implementation of the audit process — and hence are key drivers of audit quality.
4. Are the right people on the job?
   High-quality accounting firms make sure the partners and staff assigned to a company likes yours are in fact the appropriate ones for your business and industry. Do they have sufficient bench strength to be able to change some of the engagement team members (if you and a team member had a personality conflict or a team member were to leave the firm)?
   
   This calls for personnel who are ethically sound, good communicators, critical thinkers, and problem solvers and also have continually improving technical skills in their field and specialty.
   
   Ask a partner: How many years of experience does the average partner have with the firm. The right answer? Upwards of 15 is an answer that should help you gain comfort with what they can bring to your engagement based on the wisdom in the firm.
   
   Does the firm promote opportunities and access to courses for its people to continually enhance their core competencies, personal effectiveness, leadership, and professional skills? Does the firm set agreed-upon goals and conduct formal, documented evaluations of these skills on a regular basis in order to assess performance and progress — and to hold its people accountable for them?
5. Is the firm committed to technical excellence and quality service?
   A high-quality accounting firm goes beyond statutory training, accreditation, and licensing requirements. It develops its people’s excellence and delivery of superior-quality service through additional technical training, promoting business understanding and industry knowledge, investing in technical support, developing specialist networks, and instituting effective consultation processes.
   
   Ask a partner: How does the firm enhance its people’s skills? The right answer? Continuously. The firm’s methods should include self-study courses, classroom courses at national and regional levels, web-based seminars, and industry-specific training programs — not to mention staying up to date with relevant periodicals, bulletins, and other technical literature. Technical courses covering independence, financial reporting, and auditing topics should be mandatory at all levels of the firm.
   
   More broadly, does the firm take steps to ensure that its people build their overall business acumen, leadership and personal skills, and knowledge of your industry? It should.
   
   It’s also a good sign when the firm’s partners and personnel are recognized thought leaders and play influential roles in their community and region, including key positions with regulators, standard setters, industry associations, and other professional bodies.
6. Are the firm’s audits efficient and effective?
   How an audit is conducted is as important as the final result. When selecting an accounting firm for your company’s audit, be sure to ask questions about the nuts and bolts of the job.
   
   Early in the audit, will there be significant involvement and leadership from the audit engagement partner in order to maximize the impact of his or her experience and skill, and to direct the scope and tone of the audit? There should be.
   
   How will the auditing team use its professional judgment and skepticism to assess the audit evidence and reach a conclusion as to whether your company’s financial report is in compliance with accounting standards, not materially misstated, and presented fairly?
   
   How will the team be supervised during the audit? Good supervision should reflect individual team members’ capabilities, identify matters for broader consultation with other experts in the firm, and include timely reviews of the audit as it progresses.
   
   At the end of the audit, will the final reporting lead to insightful, open, and honest two-way communication (without surprises)? You bet it should! — because this, after all, is the broader, long-term goal of audit quality, a goal that extends beyond even the audit itself: When you have allied your business with a high-quality accounting firm, your ability to enjoy deep, rewarding business discussion with the firm’s array of experts and advisors will benefit your company in countless ways for years to come.