We delved into the core issues of audit aspects that agitate auditors, potentially complicating and escalating the cost of the audit process. It’s imperative for CFOs to step up as proponents, aligning auditors as allies rather than foes in this endeavor. The principle of distinct role delineation remains crucial, even within the realm of small enterprises. A singular entity donning multiple caps? Don’t be astonished if fraud examination lands on the auditor’s checklist.
Disclaimer: If the ensuing discourse echoes a symphony of auditors venting about their clientele, it’s orchestrated with intent. Engaging with a legal advisor, business strategist, or other adept (and pricey) professionals, you instinctively gear up, ensuring all pertinent documentation is accessible, and your team is primed for cooperative engagement. The meter is running, after all, and the objective is to garner invaluable insights from this exchange.
So, why is the narrative around auditor engagements often tinged with antagonism?
“Our cardinal duty as auditors encompasses safeguarding, yet extends to fostering organizational growth,” articulates Richard F. Chambers, who regards the “auditor as a disciplinarian” narrative as a relic of business antiquity.
Chambers boasts a rich tapestry of credentials—CIA, QIAL, CGAP, CCSA, and CRMA—and presides as the President and CEO of The Institute of Internal Auditors. This global entity unfurls its wings through national extensions like IIA North America, and local chapters. Prior to his alliance with The IIA in 2009, Chambers’ illustrious trajectory saw him at the helm of national internal audit advisory services at PricewaterhouseCoopers; as Inspector General of the Tennessee Valley Authority; Deputy Inspector General of the U.S. Postal Service, and Director of the U.S. Army Worldwide Internal Review Organization stationed at the Pentagon.
His insights are a treasure trove, to say the least.
At the outset, a C-level magnate should be the wind beneath her auditor’s wings. Across the European tapestry, it’s commonplace for internal auditors to report to the CEO, while in the United States, the baton passes to the CFO. “Regardless of the conduit, be it the CEO or CFO, embodying a champion is non-negotiable,” avers Chambers. This entails exuding empathy and aiding auditors in alleviating strain, without diluting the essence of their obligations.
“When auditors ruffle feathers, the CFO can don the mantle of a mentor, morphing into a mediator between auditors and the rest of the managerial cadre,” Chambers elucidates.
This sentiment resonated across our interactions with a multitude of auditors and finance aficionados.
Tackling the realm of financial auditing can be a daunting endeavor, yet auditors aren’t your adversaries—they’re imbued with the human touch,” shares Grey Idol, co-founder of Payroll Funding, a firm adept in invoice factoring tailored for staffing agencies. “Facilitating a conducive environment for your auditor paves the way for a seamless process.”
For those attuned to the sagacity of Idol’s counsel, we unravel nine perceptions pertaining to what auditors, consultative and internal alike, find irksome, coupled with a handful of enlightenments they wish CFOs were privy to.
Absence of Systematic Descriptions
It’s imperative for auditors to meticulously document the accounting mechanisms of their organization or clientele. This is non-negotiable.
“A comprehensive system description serves as a roadmap, enabling us to grasp the process through perusal, thereby necessitating merely a client walkthrough for illustrative purposes,” articulates Abir Syed, a Certified Public Accountant spearheading his consulting venture, Upcounting. His professional voyage has also witnessed tenure as an audit manager at Ernst & Young and as Vice President of Finance at a lucratively-backed startup.
In scenarios bereft of robust descriptions, auditors find themselves orchestrating interviews with accounting team members to decipher the process intricacies. This scenario invariably morphs into a time sink for all parties involved.
“An added feather in the cap is when the system description elucidates the handling of exceptions,” Syed remarks.
The Quagmire of Manual Workarounds
“When a substantial volume of transactions adheres to a uniform process, it remarkably curtails the extent of testing we are necessitated to conduct,” expressed Syed. “However, a labyrinth of manual overrides, workarounds, and exceptions, often beckons a meticulous walkthrough of several such transactions to ascertain they don’t precipitate adverse accounting ramifications.”
The quill of handwritten bills and records only exacerbates the situation, as Ian Kelly, Vice President of Operations at the wellness beacon, NuLeaf Naturals, elucidates. With a repertoire of launching two ventures and lending his consulting acumen, Kelly has navigated the audit odyssey numerous times, with some voyages more serene than others.
“There have been epochs where auditors find themselves ensnared in numerical conundrums, compelling a revisit and overhaul of the entire process,” he recollects. “The specter of illegible handwriting escalates the frustration to an entirely new plateau.” Despite a penchant for paper in your enterprise, ensuring a digital footprint of every document prior to the auditor’s arrival is prudent. This transition into the digital realm might unveil discrepancies, affording an opportunity to rectify them afore they blemish the audit report.
The Impediment of Unresponsive Financial Associations
Operating in isolation is a pitfall CFOs ought to circumvent. It’s imperative to foster robust liaisons with banking institutions, mortgage firms, credit issuers, and other fiscal conduits, ensuring prompt responses to auditors’ requisitions for confirmations.
“Anchoring all the figures on the balance sheet, with cash holdings being paramount, is an auditors’ requisite,” elucidates Kristy Clabaugh, a Certified Public Accountant and partner at the accounting vanguard, Element CPAs. “Our attestations concerning the company’s leverage extend beyond mere bank statements.”
Strategic foresight, particularly amidst a web of financial relationships, is invaluable.
“CFOs or CEOs should orchestrate a prelude with bankers and other financial service purveyors a fortnight or so in advance, heralding the impending requests for confirmations pertaining to loans, mortgages, bank accounts, credit lines, and other fiscal instruments by the auditor,” Clabaugh advises. “An established rapport with banking personnel can expedite the confirmation turnarounds. In the absence of such rapport, the process is prone to protraction.”
The Snarl of Inadequate Preparation—Magnified by Delays and Excuses
To propel the audit journey swiftly, ensuring the ready availability of standard financial statements and transaction documents is fundamental. Arrange access to pertinent applications, encompassing payroll, asset, inventory, and stock-option accounting. Incorporate foundational documents into this cache, including articles of incorporation, long-term lease agreements, other legal accords, and everything explicitly requisitioned by the auditors for this engagement.
“Optimize your auditor interaction by procuring a checklist of necessary items, like board minutes and reconciliation documents, well ahead of time, allocating ample preparation window for your team,” advocates Chyla Graham, a Denver-situated CPA and the helm of CNRG Accounting Advisory, in a dialogue with Brainyard. “The essence of preparation cannot be overstated.”
The quagmire of incomplete financial statements, unsupported transactions, and elusive documentation can drive auditors to the brink of exasperation.
“Auditors will dispatch a roster of documents for you to prepare beforehand,” Idol points out. “The plea of being swamped is hardly a viable excuse for unpreparedness. The reality is stark—you ought to have swift access to all your financial documentation.”
Do not overlook furnishing evidence of amendments solicited in the preceding audit.
“If auditors have stipulated specific information, have it at your fingertips,” urges Ben Reynolds, CEO and founder of the investor information domain, Sure Dividend. “Should there have been an audit the previous year with recommended alterations, brandish documentation delineating how these modifications were executed. Abstain from conjectures or ballpark figures. The auditors are on a quest for precise figures.”
The Quandary of Inferior Software Utilization
“Certain economical or complimentary software has garnered notoriety for engendering complexities,” remarks Kelly. “Such software can inadvertently toughen the auditing trajectory, not to mention the lurking security and compliance quandaries.”
A prudent route is to opt for accounting software endowed with intrinsic audit-trail features. Robust transaction-monitoring faculties significantly ease auditors’ endeavors to ascertain the veracity of your financial data, consequently diminishing the workload in both internal and external audits.
In the contemporary audit landscape, a portion, if not the entirety, of the audit is orchestrated remotely. Cloud-based accounting software, which emerged as a prime preference in the recent Brainyard survey, facilitates a smoother audit process by granting auditors direct access to delve into financial statements, trace back to underlying ledgers, reports, reconciliations, and the original transactions. Features like the attachment of corroborative documents to transactions metamorphose the audit into a self-serve model, thereby relieving your team from the chore of incessantly retrieving information at the auditors’ behest.
The epoch of amassing heaps of paper documents for audit scrutiny has essentially phased out, granted your entity is equipped with professional accounting software embodying apt recording and reporting competencies—and your team harnesses it proficiently.
Auditors, encompassing those affiliated with the IRS, can seamlessly meld their tools with prevalent business accounting software. In fact, the IRS habitually mandates the submission of accounting software backup files at the dawn of the auditing voyage. The requisite extends to providing an admin username and password alongside the designated backup file on a CD, DVD, or flash/jump drive.
External auditors might request a temporary, read-only password for cloud-based accounting software access, or hard copies of backup files. Conversely, internal auditors typically possess admin access to the firm’s accounting software and records.
An absence of such access is a glaring red flag, signaling that the relationship necessitates meticulous re-evaluation and fortification.
Navigating the Nebulous Zones
“The rubrics governing what’s deemed accurate or erroneous seldom exhibit a clear demarcation,” articulates Zach Reece, a CPA whose professional voyage once intertwined with Deloitte. “A scenario where two auditors scrutinize the same tax return can culminate in disparate conclusions, even discord on the necessity of an audit.”
This scenario gains prominence in the current tapestry, where stipulations surrounding Federal loans are in a state of flux. Reece, now at the helm of a small enterprise, accentuates that such ambiguity is a fertile ground for disputes.
“When enterprises challenge the rationale behind their audit, often their assertions hold merit as the highlighted ‘errors’ are essentially open to interpretation,” he elaborates. “Such nebulous zones frequently sow discord between the auditor and the auditee, or even within the hierarchical echelons of the audited entity.”
In instances of uncertainty, soliciting the auditor’s insight beforehand is a sagacious step.
“Through the prism of experience, I’ve discerned that auditing transcends a rigid scientific framework,” reflects Kelly. “There exist gray areas necessitating interpretative analysis. Thus, amid discord, a prior comprehension of the subjective contours enveloping certain audit facets could be a monumental time-saver.”
The Downfall of Neglect and Carelessness
“Auditors are disheartened at the sight of unwarranted losses and the cascade of issues that follow,” articulates Chambers from The IIA. “Wastage is emblematic of faltering internal controls and risk management protocols. Neglect signifies a dereliction of pivotal managerial duties, paving the way for preventable predicaments.”
Both Chambers and Graham underscore the notion that CFOs should envision an audit, particularly when helmed by seasoned external professionals, as a conduit for organizational enhancement. Though they abstain from name-dropping, Graham elucidates that it aligns with ethical and scope parameters for auditors to impart best practices and insightful strategies witnessed in analogous enterprises.
However, Chambers points out the difficulty embedded in advocating growth-centric measures amid glaring profit erosions.
“Losses borne out of carelessness, stemming from a void of due diligence or supervisory vigilance—for instance, a hefty environmental mishap—can cripple an organization,” he explicates.
The Peril of Absentee Segregation of Duties
The American Institute of CPAs (AICPA) underscores segregation of duties as a foundational pillar in fortifying risk management and internal controls within any business landscape.
“At the core, auditors are probing for potential distortions in the financial figures,” delineates Clabaugh. “When a singular entity shoulders an array of tasks, spanning from revenue collection to disbursement of company bills, the control environment around these numbers dwindles, thereby amplifying the auditing workload.”
In essence, a deficiency in duty segregation escalates fraud susceptibility. Even in the absence of maleficence traces, the auditor’s task spectrum broadens considerably. This pitfall conspicuously ensnares Small to Medium-sized Businesses (SMBs).
“While it’s conceivable for individuals in smaller enterprises to juggle multiple roles, the allocation of these roles should still honor the principle of segregation of duties,” advises Syed. “A deviation from this principle can markedly elevate the perceived risk, thereby necessitating a more exhaustive audit examination.”
The Detour of Disregarding or Circumventing Controls
“When internal controls, poised to substantially mitigate risks—along with the corresponding audit workload—are in place, yet are perpetually sidestepped or overridden by management, the resultant cost savings evaporate,” articulates Syed. “The scenario exacerbates if the auditors are blindsided by this disregard for controls upon their on-site arrival, having budgeted for a succinct, low-risk audit. Suddenly, the audit morphs into a demanding endeavor, necessitating a surge in testing within the originally allotted timeframe.”
The efficacy of internal controls is contingent upon their actual implementation.
While no accounting software can entirely streamline the audit process, NetSuite Financial Management incorporates numerous innate controls aimed at thwarting and identifying discrepancies in financial data and reports. By amalgamating these functions into a unified solution, NetSuite Financial Management empowers entities to circumvent manual errors within the transaction trajectory. It fosters adherence to organizational standards through tools designed to engender a uniform accounting methodology. Additionally, it features preventive access controls, enabling administrators to tailor privileges for each user, thereby further cementing the fortification of the financial data milieu.