Is it really worth the risk for your business of managing client audits yourself, rather than using dedicated auditors?
Auditing used to be quite common for general accountants. Because of regulation changes over the years, it’s become riskier to take this approach; however, there are still plenty of general accountants who turn their hand at auditing when they see fit or are requested to by clients.
While it may be tempting to keep everything in-house, could there be a more effective way of managing an audit – both for you and your clients?
As an auditing general accountant myself…
This year marks my twentieth year at SRJ Walker Wayland, my twentieth year as a Chartered Accountant and my twenty-third year in accounting.
In the past two decades I’ve worked mainly in small to medium firms, starting out in a suburban small firm before moving across to SRJ Walker Wayland.
That background is not the standard background in the audit space. Most professional auditors these days have worked in larger firms and completed their apprenticeship in auditing in this environment. Admittedly, it does give you a great grounding.
However, my background is in the general practitioner space, where you do a bit of everything: mostly tax and business advice in the early days with a smattering of audit and even insolvency.
Back then, many smaller firms were like this. Many still are, despite changing times.
When the work becomes too risky…
One day, our firm stopped our work in winding up companies and the insolvency-related work that came our way.
The regulations and skills needed, along with the significant risk of getting it wrong, meant that many firms, including those that I worked in, just stopped doing it.
Instead, we started building relationships with insolvency specialists, referring the vast majority of this type of work to them.
This work was not our bread and butter anyway. Being non-recurring income and often having to hold work in progress for many months, we simply weren’t structured to do it effectively.
Adapting to the changing landscape of audit
Auditing has been viewed differently to insolvency work by many accounting firms. Maybe because it is recurring revenue work, similar to the traditional compilation of financial statements and tax returns, the temptation to retain auditing work has been high.
So general accountants have persevered with completing audits for a wide range of entities in the same way they have done for a number of years; dusting off the old “Big 4” audit program from back in the day.
But is the risk worth it?
In the mid-2000s, the audit world changed with the introduction of “force of law” auditing standards.
At that point, our firm (along with many other smaller accounting firms) had to make a decision of whether the risk of staying involved in audit was worth it.
I was involved in audit part-time and we had a small but reasonable client base. There was a lot of work to do to get ourselves skilled up enough to ensure we were completing compliant audits with a value-add focus.
We decided to back ourselves and invested in training and development of systems and procedures to make sure we were delivering high-quality audit services.
We took it seriously, becoming part of Walker Wayland Australasia and also working with CaseWare. Our investment focus hasn’t stopped in more than 10 years. We’ve built a dedicated audit team who live and breathe audit on a daily basis.
Under-estimating the risks of auditing for accountants
Many smaller accounting firms have plodded on without adapting to this changing auditing landscape.
Many are set in their ways. They’re still dusting off the old audit program and producing very neat but, in many cases, non-compliant audit files, when they can fit it in around their tax lodgement program.
For the past six or so years, I’ve been a quality reviewer in the auditing profession. I’ve seen this scenario regularly from well-meaning fellow professionals. In reviewing audit files from general practitioners from time to time, I often wonder why they would put themselves at risk by completing audits that do not cover off on current auditing standards.
I know that, in some cases, there is a community expectation and, in other cases, it might just be difficult to let go of that recurring revenue.
But if you’re currently doing just a bit of audit on the side, it really is time to consider whether you should continue.
Apart from the ethical consideration of whether the work should be accepted if capabilities are not up to it, the risk is just too great.
Year after year, you’ve completed the audit and nothing has happened. It just gets signed off, invoiced and you get on with life until the next year. But, as with any risk, getting caught our can be rare but it’s just as painful when it happens.
If, for instance, there is an insolvency event and the audit file hasn’t ticked the required boxes on addressing going concern, what would happen?
Auditing: What are your options?
I believe in the need to specialise in auditing. If you’re serious about audit, you need to dedicate time, money and people to making sure your firm is meeting the requirements and offering a service of value.
If not, then it’s time to ask “should I be auditing?”
If you decide against auditing in the future, talk to us. We can help you maintain the great relationships you have with your clients while also looking after their auditing requirements professionally and compliantly. Contact us here.
By Jason Croston – Managing Director of SRJ Walker Wayland