Although the economy might be showing signs of recovery, business owners continue to look at ways to keep costs down, and one of the most common costs that business owners look to reduce is professional fees, says Marc Newman, CPA, assurance manager at SS&G.
“A key element to reducing professional fees is to ensure audit engagements are efficient for both the accounting firm and the business. Although efficiency can be gained on audits in different ways, one of the most important is constant communication throughout the year,” says Newman.
“Throughout the year, the auditor and business owner should consult on all significant transactions to ensure the transactions are properly reflected in the financial statements and that the transaction makes business sense.”
Smart Business spoke with Newman about the steps you can take to help lower the cost of your annual audits.
What can a company do internally to help lower costs?
Understand the need for financial statements and what is driving the requirement to have an audit. An audit provides the highest level of assurance on the company’s financial statements but can be expensive to conduct. Engage your firm to assist in negotiating an acceptable lower level of assurance on your financial statements, such as a review or compilation, which are both less in scope and fees than an audit.
If an audit is the only acceptable level of assurance, having an active role in the audit process can have a significant impact on the cost. Establish an internal level of materiality to determine which transactions or accounts could have significance to users of the financial statements. Once an internal level has been established, the company should gather all relevant documents which support accounts or transactions over materiality to include in a financial close and reporting package. This will not only enhance internal controls but can also reduce the amount of documentation subsequently requested by the auditor, thus saving the auditor time.
Establish controls to safeguard the company’s assets and prevent and detect errors in its financial statements. If a company can properly design and implement an effective internal control environment, the auditor can test the company’s controls to determine whether or not the auditor can rely on the company’s controls and potentially reduce the amount of substantive audit procedures the auditor would have to perform.
Consult and communicate on all significant and material transactions throughout the year. This will ensure all significant transactions are properly reflected and disclosed in the financial statements and whether the transaction makes business sense. For example, if a lifestyle center is in the processes of refinancing its maturing debt, or a real estate developer is looking to acquire a new track of land, there are specific accounting and reporting requirements that dictate how these transactions are to be recorded and disclosed. Identifying the proper accounting treatment prior to commencement of field work can reduce the amount of time the auditor would incur in proposing adjustments or disclosures to properly reflected the transaction within the financial statements.
A properly staffed accounting department is vital to controlling audit fees and providing owners and the auditor with current and accurate financial information on a timely basis. It allows the company the ability to properly design and implement an effective internal control environment while establishing acceptable accounting procedures and policies.
How can the bid process affect costs when a company is looking to change firms?
Typically, companies will issue a request for proposal every three to four years. Although fees are always a consideration, it is important to recognize that the lowest bid is not necessarily the best for the company, and could lead to an increase in audit fees. There is a true cost in changing accounting firms. The successor firm will have to invest a considerable amount of time gaining an understanding of the company’s controls, the environment in which it operates, and its accounting policies and procedures. Also, consider the efficiencies that have been gained from the years of experience and knowledge with your current accounting firm. Companies should consider the accounting firm’s expertise, reputation and existing client base before selecting an auditor.
How can a business choose the best firm for its needs?
Consider the industry expertise within the accounting firm. Some CPA firms have niche practice areas that better understand certain industries, which not only can help with specific problem solving, but can help save time.
Look at a firm that focuses on retaining employees to achieve a low turnover in its staff. Continuity of the audit engagement team plays a significant role in keeping audit fees stable from year to year.
In the future, will your business require additional professional services beyond the traditional tax and assurance services, such as payroll processing, retirement and medical plan design and administration, or wealth management? Consider the capacity of the accounting firm. Does the accounting firm have sufficient staff to meet deadlines?
Consider what technology the accounting firm has in place. How easy is it to transfer and receive documents? A portal allows a company the ability to transfer large amounts of data quickly and securely through the Internet, thus adding efficiency to the audit process.
Finally, understand how the culture and the mission of the accounting firm compares to the company’s culture and mission.
MARC NEWMAN, CPA, is an assurance manager at SS&G. Reach him at [email protected] or (440) 248-8787.
