Choosing an audit firm can be a daunting and lengthy process, but making the right decision can add significant value to a business.
Some companies, however, are so focused on obtaining an audit report at the lowest possible fee – irrespective of who signs it off – that they fail to realize the value that a long-term partnership with a suitable audit partner and firm can bring.
This is according to Wiehann Olivier, Partner at Mazars, who says that the first step to finding a suitable auditor is to determine whether the company is required by its Memorandum of Incorporation or law to have its financial statements audited, or if this is a voluntary decision made by the company’s shareholders.
He adds that the question of who is going to place reliance on these financial statements also needs to be asked. “Are shareholders, potential investors, or financial institutions going to place reliance on your financial statements, and what do they expect in terms of an audit report and the audit firm issuing the audit report?”
Once these fundamentals have been established, Olivier says that the following critical points should be taken into account when appointing an audit firm.
Strive for an all-in-one solution
Medium-sized and larger audit firms usually have the infrastructure and capabilities to service a variety of clients on non-audit-related requirements without compromising their independence, says Olivier. “Subject to the provisions of the Companies Act and other local legislation, this means that one firm could be able to fulfill all of the business’ current and future needs, such as payroll, tax consulting, BEE verification, accounting, sustainability, forensic investigation, and estate planning.”
Ensure that necessary regulatory standards are met
Olivier explains that while all registered auditors and firms are regulated by the Independent Regulatory Board for Auditors (IRBA), not all of them are subject to a cyclical review from the IRBA.
“A review from the IRBA means that the board physically inspects and examines the audit files of an audit partner to ensure that the audit is conducted at an acceptable level of quality and that audits have been performed in terms of the International Standards of Auditing (ISA) and the requirements of the Companies Act. Furthermore, the IRBA also conducts an annual review of the audit firm’s processes and audit methodology to ensure adherence to quality standards and compliance with the International Standard on Quality Control.”
Get a team on the ground
Olivier says that there is a significant difference in quality and service between a team that conducts its audits remotely, and those that are physically present on the business premises. “In terms of the ISA, the auditor needs to obtain an understanding of the business and also ensure that an effective internal control environment that supports the business’ strategies and objectives are in place and working effectively. This is difficult for an auditor to conclude if they are not physically present at the business’ premises. Any deficiencies or a breach in this internal control environment needs to be reported to those charged with governance of the business to ensure that a compliant and a value-ad-service is rendered. Depending on the nature of your company, a remote audit is usually not the most efficient way, even though it might be cheaper.”
Check for a succession plan
Should the company, in terms of the Companies Act, require to rotate its audit partner (not audit firm), Olivier says it is helpful to determine whether rotation can occur amongst audit partners in the same firm. “Similarly, you need to consider if there is a succession plan in the firm for your company’s audit to rotate to another partner when need be.”
Find the right match
It is paramount that the audit team and the firm, in general, have the required experience and expertise to tend to all of the company’s needs, according to Olivier. “A good indication is usually if your chosen auditor has experience in similar industries or a good track record. Any worthy auditor will always be able to give you a reference of any of their clients if you want a second opinion or more assurance on their capabilities.
“At the end of the day, it should be the answers to the above questions, not solely the auditor’s fee, that should guide you when appointing an auditor,” Olivier concludes.