more-arw search

Q&A Forum

Is it ok to challenge external auditors and/or seek justification for their inquiries?

Answers

Anonymous
(Finance Director / Controller) |

If your Company has a different interpretation on the appropriate application of GAAP, etc. questioning/challenging the auditor is one way to arrive at consensus.

Regarding the second part of the question, as a former auditor, I would say that their inquiries are most likely required for them to do the job they were engaged to do.

Either way, pushing back at the auditors is not a course of action to be taken without justification. Their role is to be an independent reviewer of your Company's financial books and records and they were most likely hired by your BOD to do this. You risk appearing belligerent or secretive if you can't field most audit requests in the due course of business. Ask yourself this: if the auditor believes that you are uncooperative are you prepared to address this being communicated to your CFO and BOD?

That being said, auditors make mistakes too. If you believe this is the situation, you might need a second opinion (i.e. if it's a technical accounting matter).

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Feel free to challenge an audit conclusion or recommendation. But challenging an inquiry raises flags, unless you have justification.

I worked as a client for one of the Big 4, for about six years on multiple company year-end audits. The only time we challenged an inquiry was when the Auditors requested a copy of each company's Minute book. Our attorney said no, but offered an opportunity for the auditor to review each Minute book in the offices of the Legal department. No books could be copied or taken off-site.

Topic Expert
Randy Miller
Title: Partner
Company: CFO Edge
(Partner, CFO Edge) |

I agree with Regis that you should feel free to question your auditors, but rather than "challenging" them, you are better off approaching them from the viewpoint of clarification and understanding. Depending on the level of education/expertise in your companies industry, auditors may request information that is immaterial. You never want to appear like you are hiding or denying information, but questioning the purpose of the inquiry can often clear up issues and lead to auditors getting the best documentation that they need for their work.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

Challenges on the application of accounting principles are normal, although infrequent. Challenges to audit procedures are rare and limited (read but do not copy minutes), and can lead to opinion qualifications for scope limitations.
Frequent challenges on principles implies aggressive accounting, an audit risk factor and a negative.

Jeff Baer
Title: Corporate Controller
Company: Consona Corporation
(Corporate Controller, Consona Corporation) |

I have no issue with challenging an external auditor on a technical issue. Remember, these are your books and records. If you have properly researched any potentially contentious issues there is no reason to avoid having a respectful discussion if your auditors challenge your interpretation. I've done this on several occasions and have rarely had my conclusions overruled. This can also build a stronger relationship as it provides the auditors with greater comfort in your technical accounting capabilities.

With regard to challenging them on process, again I have no issue raising questions regarding changes in approach year over year, or differences from expectations established during planning. As part of the annual audit planning discussion the auditors should describe their scope and process, and/or any expected changes in scope or process from the prior year and the reasons behind those changes, so there are no surprises when field work commences. If unexpected inquiries are made during field work, challenging an onerous inquiry from a perspective of resource availability and timing of delivery is not unreasonable. Of course if an expansion in scope results from issues identified during the audit, your time would likely be better spent determining and correcting the cause of the issue than in pushing back on additional testing.

Anonymous
(VP Finance) |

Normal to challenge. Remember, they don't understand your business like you do. Just be professional and armed with facts like any conflict.

Greg Carrier
Title: Director of Internal Audit
Company: Drew Industries
(Director of Internal Audit, Drew Industries) |

It is part of the audit. In my experience, we do more challenging of methodology being used then specific technical issues, though both come up. Challenge si a strong word as in our case we are more or less suggestiing methods for getting to to the right answer either more efficiently or using a method which is more apt to come to a correct conclusion.

Anonymous
(Controller) |

Its fine to ask for technical clarification or explanations as to GAAP interpretations. Our auditors have been happy to provide that information and especially so when as someone states in an earlier posting, its done in a "respectful" way.

Anthony Rubino
Title: CFO
Company: Manzo Organization, LLC
(CFO, Manzo Organization, LLC) |

I would not use Challenge as a description or a process. It is our responsibility to know what the scope of an audit is and what it entails. Then based on the questions that are asked and information being requested; you can make informed questions as to how the questions and documetation tie in an audit area and it completion.

8533 views
Topics

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.