Annual Audit: 5 Ways to Save Time, Money
(This article was originally published on Exit Planning Exchange.)
By Allan Tepper
Companies need about three months to receive a clean opinion for their annual audit.
So why does your company need more time?
Expending too much time and money on your annual audit is a red flag for the executives involved with corporate governance and financial oversight.
New accounting rules and regulatory changes continue to drive the average hourly fees that public companies pay to external auditors. The rate has increased 31% during the last decade, according to a survey of finance executives. The average total bill jumped to $2.52 million in 2020.
“Auditors service two types of clients: those who are not prepared for the audit and those not properly prepared,” says CFO Consulting Partners’ Jeffrey Yager. “However, clients that are not prepared will generally pay higher fees. Nobody wants the audit to drag on. Everybody wants it done timely. Audit readiness translates into cost savings.”
Unfortunately, financial costs aren’t the only expense. Add opportunity costs to the tab.
“Annual audits can be long and very expensive, not only in terms of the bill, but in terms of the wear and tear on your staff,” say CFO Consulting Partners’ Paul Karr. “A long, drawn-out audit is a huge distraction. Your staff can’t move on to their other duties if they are busy with auditors for long periods of time.”
Here are five ways to save time and money on your next annual audit process, according to CFO Consulting Partners’ Audit Readiness team members:
- Take Ownership Of The Process.
Companies tend to be unclear about what role they play in the annual audit process. And that ambiguity leads to inefficiencies along the way.
“It’s very important to prepare and manage the audit,” Karr says. “Most companies understand what it means to prepare for the annual audit. However, managing the audit doesn’t mean it is something the auditor does—it’s what the company does. Managing the audit process means keeping track of the auditor’s progress and establishing a good rhythm of meetings with the audit team. You want a regular rhythm with auditors. Is there a clear understanding about what they need? How can you respond to those needs as quickly as possible? Own the process.”
- Talk To The Auditor Sooner Than Later.
Building rapport with the auditors before the audit begins is a smart investment. This new relationship can result in saving time and money.
“It is really important to have a dialogue each year with your auditors and discuss what are the ways to better prepare for the audit,” Yager says. “There are always additional things that companies can do to achieve cost savings, make it a much smoother audit process so it’s completed on time. Discuss what work can be taken on by the company that would otherwise be done by the auditor. A company can’t perform its own audit, but it can make sure it has prepared the proper schedules to the extent the auditor is comfortable with the client doing the work. It will translate into less hours that the auditor will spend on the engagement.”
- Engage The CEO.
Leaving the company’s CEO out of the audit picture is a real problem.
According to Oracle’s 2021 “New benchmarks for security, risk, and audit” report, 30% of surveyed financial executives said lack of upper management support was one of the top challenges to their audit process.
The desired level of support begins with C-Suite involvement from the beginning of the process.
“CEOs need just enough details so they can manage them and not be blindsided,” says Karr. “The annual audit isn’t an audit of the accounting department; it’s an audit of the company. When it comes to internal controls, the CEO is needed to help everyone understand that. It’s not just about the Finance Department. The operations people have to be part of the game. So do the team members in credit. An involved CEO brings everyone together and holds them accountable.”
- Tell Your Story—Before Someone Else Does.
In recent years, changes in standards have helped drive up the cost of annual audits, which are beyond the control of the company. Being better prepared with appropriate financial records is something the company can control to reduce the cost.
Companies should tell their story with accurate financial statements and identify gaps or potential issues that could cause the audit process to drag on.
“Work closely with the auditor on certain issues before the audit actually starts,” says Yager. “How have any new accounting standards impacted the company? Have you addressed the new standards? Are there technical memos that need to be written for the auditor? That could save money.”
Companies also should spend more time reviewing the financial statements for disclosures that are missing or not written properly. “It’s important for companies to take ownership of the financial statements, as opposed to thinking, ‘the auditor will clean up everything, so I don’t have to.’ CFO Consulting Partners can assist a company with all of these items.”
- Measure And Manage.
Philosopher George Santayana once said: “Those who cannot remember the past are condemned to repeat it.”
He probably wasn’t talking about annual audits, but his point still rings true.
Companies should start this year’s annual audit process with last year’s.
“When preparing for the audit process, take a look at the rough spots from prior audits,” Karr says. “There is plenty of knowledge and anecdotes about things that didn’t go well. Before the audit starts, companies should review those areas with their staff and plan on how to make those areas work better.”
If revenue testing has been problematic, for example, conduct a pre-audit. Review financial records with the largest revenue transactions of the year. Pull the financial documents now and make sure you are ready. By getting ahead of it now, allows your team to get the audit done faster—saving time and money.”
CFO Consulting Partners is comprised of a team of senior financial executives. We provide a broad range of financial management services to public and private companies. We work for CEOs, CFOs, as well as audit committees and boards. Our mission is to apply our consultants’ considerable collective experience to resolve client issues in a professional and efficient manner.
Jeffrey Yager, CFO Consulting Partners; over 30 years of experience as a former audit partner at RSM US LLP. He has served as the auditor and advisor to domestic and offshore hedge funds, private equity groups and investment advisory firms.
Paul Karr, CFO Consulting Partners; a former Big 4 audit partner, has over 20 years’ experience in senior leadership roles in finance and controllership, including over 15 years in insurance and financial services, and provides leadership in closing processes, internal controls, accounting policy (US GAAP and IFRS), SEC financial reporting and restructuring.
(Allan Tepper, CPA/MBA, is co-founder and senior managing director at CFO Consulting Partners. He can be reached firstname.lastname@example.org or (646) 650-2028 x701.)