Audit Firm Transitions (#401)
/How do you transition from one audit firm to another? The key issue here is that the accounting department typically operates under an activity calendar, where there’s just enough staff to take care of invoicing customers, and processing supplier invoices, and closing the books, and so on. And then you want to dump in a bunch of inquiries from the new auditors that will generate a lot of turmoil. What you have here is a capacity planning problem, combined with the uncertainty of not knowing exactly what the incoming auditors want.
Capacity Planning Perspective
Take this from the perspective the annual audit. You know it’s coming, you know roughly how many auditors will show up, and you can make a pretty good guess at what they’ll ask for, based on the previous year’s audit. Based on this information, you set aside office space for them, and schedule your staff to deal with them. When you have new auditors wanting to come in early to learn about your organization, it’s the same thing, except that it’s happening months in advance of the regular audit.
Now, look at this from the perspective the new auditors. They want to know what kind of audit risk they’re going to be dealing with, so they can put together a reasonable audit plan. This will involve some high-level interviews to get a general understanding of the business, and then they’re going to want to look at the prior auditors’ workpapers, and likely go through your system of controls. The exact nature of their work is going to depend on their own internal risk assessment process. If they find some issues, then they’re going to delve deeper in certain areas. In essence, you can likely get a high-level concept of what they’re going to do, but not a detailed one. This introduces some variability into who they’ll want to talk to, and for how long they’ll be on site.
So, how do you deal with this from a capacity planning perspective? Setting up office space for them is usually not so hard. The real impact is on your staff, who will have to block out time to deal with them. They’re probably already involved in regularly scheduled activities, or maybe on special projects, or maybe they plan to be on vacation. How do you deal with it?
The key point here is to have a negotiation with the incoming auditors over the rough dates when they plan to be on site, and who they’re going to want to meet with. I suggest that you do this on a conference call, and bring in your assistant controllers or senior staff, along with a work schedule and vacation schedule.
The auditors probably have several open time slots, so work through their list of possible dates with your people, and see what works best for your department, not what works best for the auditors. They need to work around your schedule.
Dealing with the Auditors
A few tips on how to deal with them. First, shut down any special projects that you were planning during the dates when the auditors will be on site. That way, there’s less to distract your staff.
Second, tell your staff that the auditors are their top priority. Why? Because the sooner you deal with whatever they need, the sooner you can get them off the premises and your people can get back to their normal activities. If you do the opposite and give them a low priority, then they’ll be on site and distracting your staff for a lot longer.
Third, centralize auditor requests. Have one person, probably an assistant controller, coordinate every request coming from the audit team. This prevents auditors from independently approaching your employees, which eliminates duplicate requests.
In addition, ask for a preliminary request list. Even though the auditors will not know everything they need until they complete their risk assessment, they should be able to provide an initial list of documents, policies, and so forth. Getting this early allows your staff to accumulate documents in their spare time before the auditors arrive.
Next, have your coordinator operate a request tracker. This means keeping a list of each auditor request, who’s responsible for it, and the current status. This is really useful for making sure that no requests get lost.
Also, meet with your employees in advance and tell them why the auditors are coming in early, and the topics they’re likely to cover. Tell they to stay on topic and be as factual as possible. No guessing allowed. The main point here is to get the auditors what they want, keep them focused, and get them out the door with the information they need.
Finally, reserve some capacity for contingencies. The auditors may decide to dig deep in some areas, and that will probably require more staff time. To get a feel for these issues, consider meeting with the auditors at the end of each day to understand how much time they still need, and who they’re going to need information from. This isn’t perfect, since the auditors might come across something at the last minute that causes them to ask for more information. Still, keeping on top of the status of the auditors’ work should give you some feel for when your people can be released back to their normal activities.
In short, you need to mesh your department’s available capacity with the needs of the incoming auditors. That means picking the best time slot for their review work, focusing hard on what they need when they do arrive, and doing so in a coordinated manner. By taking this approach, your can minimize the level of disruption in your department.