Whether you’re into big or small business, a third party review in your business operation could create a favourable position for your Company. In financial reporting, external auditors are the third party who perform an independent review or conduct an audit on a company’s financial statements and records. They evaluate all the necessary accounting and financial records in order to support their opinion about the fairness of the company’s financial statements presentation.
There are many external audit firms in the market, but the question is “who will you choose?”
A company generally must undergo a thorough process of selecting an external auditor that usually involves bids and tenders. The invitation to bid and tender should include a clear description of the company and its audit requirements. It will give details of the type of industry the company undertakes. It will also specify what type of audit it is looking for and will also give a clear description of the company’s management, internal control, and administrative procedures.
In real practice, it is common for a small business owner to go to the smallest bidder (lowest audit fee) among the bidders. But to ensure the quality of service, it is recommended to choose the right external auditor. Although the price for the work to be performed is an important factor in choosing a qualified external auditor, you will be more likely to get a high quality audit at a fair price if both price and technical qualifications are taken into consideration.
For small business owners, here are some important tips for choosing an external auditor or audit firm:
Professional license requirements to perform an audit
External auditors must be licensed like but not limited to Certified Public Accountants (CPA) or Chartered Accountants (CA). In addition, the external auditor or audit firm should have an accreditation from certain organizations. Business owners should take into account the different users, whom they will submit their audited financial statements and reports. There are specific offices and organization that require external auditor to be accredited to perform the audit, such as the Bureau of Internal Revenue (BIR), Securities and Exchange Commission (SEC), Cooperative Development Authority (CDA), Bangko Sentral ng Pilipinas (BSP), and many more.
Bear in mind that one of the purposes of having a third party to perform the review or audit is to have an impartial analysis of the company’s financial statements. Certain level of independence should be taken into account. You should not hire an external auditor whom you should have a direct relationship or significant indirect relationship that could impair the auditor’s independence.
Audit reputation and track records
The integrity and reputation of the external auditor are particularly important. It is important that they have shown from their prior engagements that they have delivered a high-quality audit service. At some point, business owners should also check if such external auditor has earlier and current legal obligation due to audit failures. You may furthermore enquire feedback on their performance from other clients they have previously handled.
The right auditor for your business type and size
External auditor must have academic qualifications, years of external audit experience, and recent continuing professional development activities. Business owners must take note of the auditor’s specific experience with the previous audit engagements they handled and determine if such experience is in line with the company’s type and size. Such qualification will be very handful in choosing the right external auditor for your specific type and size of business. For example, if you are in a manufacturing business, an external auditor who has years of experience in auditing manufacturing firms is more ideal than an auditor whose experience is on auditing firms on banking and finance sector.
The audit fee
It is also important that you should weigh the costs, efforts and benefits of the audit. Proposed audit fee should not be too expensive or too cheap. Prepare for your desired budget accordingly and be sure to negotiate for a reasonable fee. Bear in mind the benefit you will get over the cost you will spend on audit. For second-time audit, the cost of audit may be reduced, provided you have listened and implemented the auditor’s recommendation to make your accounting system and internal control more effective and efficient for audit. This is one of the reasons why you should listen to your auditor’s recommendations, through the management letter they submit after conducting an audit.
In general, external audit differs from one company to another company. That is why you should obtain as much information from as many sources as you can before selecting an external auditor. You have to consider a selection bidding process and examine each bid carefully before making a decision. You also have to be able to communicate clearly to your external auditor what you would like to achieve from the audit process. Finally, you have to see to it that there will be cooperation between you and your external auditor to make the auditing process more effective and efficient.
Image source: Business by Petr Kratochvil