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Selecting an appropriate Auditor

Atul  Madahar's Profile

Hello Proformative Community, My client has been a successful, self-funded, multi-million dollar engineering consultancy for the past 25 years. They've been profitable and never needed to take on debt, or other credit. And, 95% of their revenue has been from foreign engagements/clients. Recently, they have an opportunity to participate in a capital project JV and are putting together the bank/project financing for that. However, they need to provide an audit to banks conducted by a reputable firm. Given the simplicity of the financials, how would one go about selecting an appropriate auditor? Going to a top-five firm seems like an overly expensive option... given their audit last year took a total 10 man-hours. Is there a list of national ranked 2 tier or 3 tier auditing firms? How would you select an appropriate auditor? thanks, A

Answers

Topic Expert
Vernon Reizman
Title: CFO
Company: RCM Industries, Inc.
(CFO, RCM Industries, Inc.) |

Talk to your bank for a few recommendations. Have your controller reach out to his/her network. Select two or three area firms for follow up. With your finance person meet with the partner and ask to meet the tax person and audit person who will be assigned to the account. Discuss who will be responsible for what. Smaller firms will often handle the mundane work that larger firms will push to your staff. Get each firm to submit a quote and their fee structure. Push on each to commit for a fixed fee audit for at least two years.

Atul Madahar
Title: Director
Company: Anonymous
(Director, Anonymous) |

Vernon... thanks that was helpful

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

People use the word audit to mean many things. If you do not know, please clarify with your bank the type of audit they require –
• Complete audit that reviews the financial statement and firm controls; or
• Financial Review which is simply a third party review of your books.
There is a big difference in costs and will probably dictate the type of firm you want.

Amy Omand
Title: Director of Finance
Company: Tipping Point Community
(Director of Finance, Tipping Point Community) |

I've used the rankings from Accounting Today in the past to make audit decisions.

http://digital.accountingtoday.com/accountingtoday/2013top100firms#pg1

I think getting recommendations from the bank who is requesting the audit is a good idea, but in the absence of that, a local firm with a good reputation should do just fine. I will say, however, when we went out to bid a few years ago, I was surprised that the firm we went with (ranking in top 20 nationally) was actually less expensive then a few of the local firms, so it might not hurt to have a larger firm in your mix to just see. If they don't feel as though they'd be competitive, they will elect not to respond to your RFP.

Good luck!

Kelvin Arcelay
Title: SVP Security and Risk Management
Company: Private Company
(SVP Security and Risk Management, Private Company) |

Having assisted several companies in the same dilemma with having their systems and supporting processes ready from a Security and Compliance side of the house...any of these: PwC, Deloitte, Ernst & Young, KPMG, Grant Thornton will be easily recognized by the lending or investing institution(s).

William Mazer
Title: CFO
Company: Episcopal Children's Services
(CFO, Episcopal Children's Services) |

I will suggest a bit of a different approach to identifying an auditor. This is your audit not the bank's - not all of yours and the bank's objectives may coincide. Vernon's suggestion about using your network is best, especially with similar engineering firms. First time audits can be fraught with issues that may turn into ugly surprises (e.g., GAAP adjustments not previously contemplated, footnote disclosures about things considered private by the owners, auditing open balances, evaluations of internal control, disclosures about regulatory compliance, etc.). With any potential auditors, discuss with both the auditors and the tax guys any issues they may see on the horizon, after they have looked at your existing financials.

Garry Bartecki
Title: CFO
Company: Illini Hi-Reach, Inc
(CFO, Illini Hi-Reach, Inc) |

My main concern would be JV expertise. Working myself w some JV's tells me the fun starts after the project gets going and there are project costs, revenues and sharing agreements to understand and report properly for book and tax. If you can find an auditor w the expertise that is where I would start. There is firm in Indy that has an excellent Construction/contractor expertise that is part of a BDO Alliance. The Alliance allows for them to work both nationallly and internationally. SomersetCPAs w Ken Henlund the head of Construction Services. Worth some discussion w them.

david waltz
Title: Assistant Treasurer
Company: Integrys Energy Group
(Assistant Treasurer, Integrys Energy Group) |

I echo the suggestions of those recommending soliciting the bank's input. Given the objective of the audit is to obtain bank/project financing, you will want to provide one that is done by a firm the bank or project lenders are confident in. If they receive an audit from "Jo Shmo's Discount CPA's", a firm they've never heard of before, they very well might not accept that audit's results without a lot of extra due diligence or a further review of that audit by another auditor, which will also be on the borrower's dime.

The bank might be hesitiant to recommend anyone (due to liability fears), but if you get a list of who you are thinking about they will likely be able to verify whether they would rely on an audit from that firm or not.

You can also ask the question of your potential audit firms - "have your audits been relied upon by project lenders?"

I would also recommend allowing yourself a good amount of time. Given that 95% or the revenue is foreign, I am concerned about the potential of stumbling across arcane and technical tax issues (either in the foreign country or the US) that might require time to investigate and resolve, and might throw liabilities onto the balance sheet and/or cause restatements of past year's performance.

Topic Expert
Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

Since the audit decision is coming from your bank rather than your board or investors, it would appear that you don't consider the need for an audit is essential, other than to satisfy the bank. You might consider asking the bank if they will consider a limited review instead of a full blown audit.

A review is much quicker, limited to agreed scope, and therefore cheaper, and I have experience of a bank that has accepted such a counter request. Essentially, they were looking to verify that we knew how to account properly and they could reasonably rely on the information and covenant reports we wee required to present. Of course that assumes that your accounting is in good shape.........

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

All good advice. But, should not the board select an auditor?

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