Businesses may occasionally find themselves in the position of needing to hire an independent auditor. But how do you choose an auditor that’s right one for your business, industry and your specific situation? Here is a quick guide to help with your search.
When Do I Need an Auditor?
An independent auditor can perform many tasks to help you run your business more smoothly. These include, but are not limited to:
- Gaining an understanding of the organization’s structure, its operations, and its finances
- Analyzing variances in account balances (expected and unexpected)
- Observing your physical inventory count
- Confirming accounts receivable with a third party
You can hire an auditor to perform these tasks to help you gain insight into your business, in which case she can provide you with objective advice about how to streamline and improve your performance and efficiency.
Additionally, the independent auditor can report the findings to a third party (a bank, for example, or shareholders). In this case, the auditor is reporting on whether your financial statements are presented fairly and in accordance with appropriate laws.
Remember that an auditor is usually acting as an objective outside observer. While auditors are accountants, they do not perform the same tasks as external accountants you might hire. An auditor should not be hired to “close the books,” reconcile accounts, prepare accounts for audit, determine retirement plan contributions, etc.
How Do I Find an Auditor?
The International Register of Certificated Auditors (IRCA) offers listings of auditors, all of whom are classified by their sector or industry and have met quality principles and practices outlined by the IRCA.
Many companies hire auditors who have experience, not just in the general sector, but also in their specific type of business (i.e. not just Aerospace generally but aviation manufacturing specifically). The so-called Big Four auditing firms—PricewaterhouseCoopers LLC, Ernst & Young LLP, Deloitte & Touche LLP, and KPMG LLP—audit 97.5 percent of the market value of American companies, but this doesn’t mean they are the only firms with experience.
Question your business associates, suppliers, and clients about which auditors they’ve had success with. Sometimes large companies like to use the same auditors as their competitors (presumably because these auditors already know the business type well), while others go out of their way to do the opposite. An important part of answering the question, “How do I choose an auditor” is understanding why one of your business associates decided to work with a particular auditor over others.
What Are My Responsibilities?
The auditor prepares her report based solely on the information management provides her. Therefore, the following are your responsibilities as a business owner:
- To prepare the financial records requested, free of misstatement (whether due to error or fraud).
- To provide all records and documentation relevant to the preparation of financial statements, as well as any other information the auditor requests.
- To offer unrestricted access to those people within the company whom the auditor deems necessary to contact.
The auditor is not responsible for any mistakes in the information you report to her, either intentional or accidental, so prepare this information carefully.
Once the auditor delivers her report, you are not obligated to take any suggestions she may offer.
Do you have any other great tips for business owners on how to choose an auditor? Share them with us in the comments!