Audit Preparation Means Picking the Right Auditor (and Audit)

Audit Period

Do you require audited financials for just the current year, or for prior years as well? If related to an acquisition, do you only need to report the post-transaction period, or the full year? More/longer audit periods lead to more testing and audit costs.

Audit Standards

Are you a public company, or planning to IPO, where you require an audit under PCAOB (Public Company Accounting Oversight Board) standards? Or are you a nonpublic company where AICPA (American Institute of Certified Public Accountants) standards will suffice? The more stringent PCAOB standards come with a significant increase in audit procedures and levels of testing, and the resulting fees are significantly higher.

Legal Entity

Make sure you identify which legal entity is required to have audited financial statements. Is it at the parent/consolidated level for all operations. Or does it relate to a specific entity/subsidiary where the loan/investment is held? The larger the scope, the higher the audit costs.

Audit Deadlines

Know the deadline for when audited financial statements are required. Are you required to issue within 3 months of year-end, within 4-5 months of year-end, or with more flexible requirements of up to 9 months from year-end? Audit firms are most busy in the first 5 months of the year (January through May); earlier deadlines may lead to higher audit costs, or the ability to push audit work to later in the year can help you save on fees.

Audit Firm Size/Cost

You want to find an audit firm that fits your company’s current financial reporting goals and budget. The general rule of thumb is that the larger the accounting firm, the higher reputation they bring, but also a larger price tag.

• For companies that are publicly traded or planning to IPO, regulators and investors likely want a highly reputable audit firm. This is most seen as the Big 4 firms (e.g., Deloitte, KPMG, PwC, EY), or a Top 20 accounting firm (e.g. Grant Thornton, BDO, RSM).
• For large and high-growth nonpublic companies, investors/lenders may want a balance of reputation and cost. National and regional audit firms (e.g., Eide Bailly, Moss Adams) may still provide high credibility but be more cost-effective.
• For smaller businesses with a relatively lower investment/loan balance, a local firm may be sufficient.

Audit Partner/Team

While most audit firms have consistent audit guidelines, the audit is most heavily affected by the audit partner and managers who will be involved on the project and have the final say on most areas of the audit.

• Some partners have a rigid, "my-way-or-the-highway" audit approach; others are more flexible and collaborative in resolving audit matters.
• Aim to find a partner/manager team that takes a collaborative approach to resolving audit issues, while still displaying a high level of competence in their discussions of accounting and audit guidance.
• When searching for an auditor, make sure to have calls/meetings to get to know the partner/manager that will be involved. While it is difficult to know how they will ultimately operate, initial conversations may indicate their level of collaboration and competence.

Timing/Availability

Audit firms handle many clients, and so it is important to find a firm with the right resources and capacity to meet your audit deadlines.