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  1. Home
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  3. Now That You’ve Chosen an Auditor

Now That You’ve Chosen an Auditor

Posted by Julie Killian on August 16, 2016

Julie Killian Julie Killian

After performing the task of selecting an auditor, there are several steps crucial to a smooth transition for both the business and new auditing team. By following these steps closely, a solid foundation can be created for a successful audit.

Documenting the Agreement

The first (and most important) step is to document the agreement between the company and auditor. This should be done in the form of an engagement letter or other written documentation signed by both parties – which is required by professional standards – and contains the following information:

  • Names and parties to the contract
  • Audit scope, objective, and purpose
  • Audit fee
  • Report format
  • Type and timing of support to be provided to the auditor by the entity
  • Professional auditing standards to be followed in performing the audit

Because this signed agreement represents a contract and is binding upon both parties, the company should consider seeking the advice of legal counsel on the agreement’s form and substance. Additionally, the engagement letter should make the following points about the auditor/entity relationship, identifying changes in the kind of work or amount required, and access to, and ownership of, audit products:

  • The auditor is an independent contractor.
  • At any time, by written notice, the entity may make changes or additions to work, or services, within the general scope of the engagement. If these changes are made, an equitable adjustment will be made in the fee of the audit using pre-specified rates.
  • If the auditor believes a change or addition to work is beyond the general scope of the agreement, the auditor must notify the entity in writing within a specified time, and before beginning this “out of scope” work.
  • The auditor is the owner of its audit documentation
  • A set time period for which the audit documentation must be retained by the auditor.
  • All reports provided to the entity by the auditor are the property of the entity and subject to its use and control, according to applicable laws and regulations.
  • If the auditor asks the entity to sign an engagement letter and there is (or will be) a separate contract, the entity should review the documents to ensure there are no inconsistencies between the two contracts.

Maintaining Accurate Records

After signing the engagement letter, the entity should ensure they are maintaining adequate support for their accounting records. This will allow the auditor to manage the transition process and help the audit go much more smoothly.

The auditor will request a plethora of documents, internal procedure descriptions, and account analyses. It’s a good practice to know where these items are located, and/or be prepared to have concise answers. The more prepared the entity is for these requests, the less time the auditor will spend on the engagement, which will result in lower fees.

Monitor the Audit / Communicate

The last crucial step to an effective transition and quality audit is to monitor the progress of the audit. This step is a role most audit committees hold; however, in many smaller businesses, an audit committee does not exist. As such, this responsibility can be delegated to certain managers or those charged with governance.

The best way to effectively monitor an audit is to require periodic progress reports and check-in with the auditor on a frequent basis. By holding these meetings, it allows the auditor to communicate any current issues, which can be addressed prior to audit completion. By taking this step, not only is the final audit product improved, but the working relationship between the company and auditor is strengthened.

If the engagement letter is not for a single audit report, it is also a good idea to continue this type of communication throughout the year to provide the auditor with any relevant changes or significant items that 
may affect future reporting.

Choosing an auditor is not an easy task and takes a lot of time and energy; however, if these steps are followed closely after selection, it will assist in a smooth transition process. Managing this process will enable the company to receive quality audit reports and a strong business partner.

Our team is always ready to help.

Please contact us for more information.

Julie Killian

Julie Killian

Shareholder, Advisory & Assurance

Contact Julie   |   Read Julie's bio

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Now That You’ve Chosen an Auditor

Posted by Julie Killian on August 16, 2016

Julie Killian

After performing the task of selecting an auditor, there are several steps crucial to a smooth transition for both the business and new auditing team. By following these steps closely, a solid foundation can be created for a successful audit.

Documenting the Agreement

The first (and most important) step is to document the agreement between the company and auditor. This should be done in the form of an engagement letter or other written documentation signed by both parties – which is required by professional standards – and contains the following information:

  • Names and parties to the contract
  • Audit scope, objective, and purpose
  • Audit fee
  • Report format
  • Type and timing of support to be provided to the auditor by the entity
  • Professional auditing standards to be followed in performing the audit

Because this signed agreement represents a contract and is binding upon both parties, the company should consider seeking the advice of legal counsel on the agreement’s form and substance. Additionally, the engagement letter should make the following points about the auditor/entity relationship, identifying changes in the kind of work or amount required, and access to, and ownership of, audit products:

  • The auditor is an independent contractor.
  • At any time, by written notice, the entity may make changes or additions to work, or services, within the general scope of the engagement. If these changes are made, an equitable adjustment will be made in the fee of the audit using pre-specified rates.
  • If the auditor believes a change or addition to work is beyond the general scope of the agreement, the auditor must notify the entity in writing within a specified time, and before beginning this “out of scope” work.
  • The auditor is the owner of its audit documentation
  • A set time period for which the audit documentation must be retained by the auditor.
  • All reports provided to the entity by the auditor are the property of the entity and subject to its use and control, according to applicable laws and regulations.
  • If the auditor asks the entity to sign an engagement letter and there is (or will be) a separate contract, the entity should review the documents to ensure there are no inconsistencies between the two contracts.

Maintaining Accurate Records

After signing the engagement letter, the entity should ensure they are maintaining adequate support for their accounting records. This will allow the auditor to manage the transition process and help the audit go much more smoothly.

The auditor will request a plethora of documents, internal procedure descriptions, and account analyses. It’s a good practice to know where these items are located, and/or be prepared to have concise answers. The more prepared the entity is for these requests, the less time the auditor will spend on the engagement, which will result in lower fees.

Monitor the Audit / Communicate

The last crucial step to an effective transition and quality audit is to monitor the progress of the audit. This step is a role most audit committees hold; however, in many smaller businesses, an audit committee does not exist. As such, this responsibility can be delegated to certain managers or those charged with governance.

The best way to effectively monitor an audit is to require periodic progress reports and check-in with the auditor on a frequent basis. By holding these meetings, it allows the auditor to communicate any current issues, which can be addressed prior to audit completion. By taking this step, not only is the final audit product improved, but the working relationship between the company and auditor is strengthened.

If the engagement letter is not for a single audit report, it is also a good idea to continue this type of communication throughout the year to provide the auditor with any relevant changes or significant items that 
may affect future reporting.

Choosing an auditor is not an easy task and takes a lot of time and energy; however, if these steps are followed closely after selection, it will assist in a smooth transition process. Managing this process will enable the company to receive quality audit reports and a strong business partner.

Our team is always ready to help.

Please contact us for more information.

Julie Killian

Shareholder, Advisory & Assurance

Contact Julie   |   Read Julie's bio

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In honor of International Women’s Day, I’d like to take a moment to recognize the talented women who have helped build our outstanding reputation within the business community – both…

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