lack of relevance drives audit commoditization

premium service providers collect premium fees.

by alan anderson, cpa
transforming audit for the future

we are all willing to pay more for something that has been custom-created just for us or when we see that the service provider has gone above and beyond to deliver additional value for us. but without relevance, there is little chance that your clients will see any additional value in the audit. for the client, the only reason to get an audit is to meet a regulatory or banking requirement.

more: five crucial attributes for successful audit leadership | traditional audits don’t deserve premium billing | put the ethics code to work for your clients and your firm | turning audit & accounting into assurance & advisory | is audit in crisis because of definitions? | stop sending the wrong message to audit teams | closing the audit expectations gap
exclusively for pro members. log in here or 2022世界杯足球排名 today.

as a profession, our actions have contributed to commoditization, but every cpa firm i talk to complains about how audit is becoming commoditized. when someone complains to me about commoditization, the first thing i ask is, what do you do when you’re under a little fee pressure from your client? oh, lower my fee. so, why are you lowering your fee? because quite often, whether you’re thinking about it or not, you probably haven’t delivered anything more than 24 pages with an audit report on it.

if you ignore relevance, you can’t provide value to your clients. when clients don’t see any value in what you do compared to the competition, they choose based solely on price. everyone is willing to pay more when they perceive and receive value from what they buy.

let me tell you about a conversation i had with gale crosley. gale is a consultant to cpa firms who helps them with their marketing. she called me and said, “al, i’ve got to ask you about what’s going on in audit.”

“what do you mean, gale?” and she said, “i’m helping a firm with their niche marketing, and i help them sometimes put together proposals. and on occasion, this firm’s fee is higher, but we demonstrate that we actually deliver a value proposition and that our audits are more relevant than most. on a recent proposal situation that we were in, it was an interesting dynamic.” she told me that the firm she was helping proposed around $90,000 for an audit and that the highest fee was $135,000. so i asked her if they left money on the table because their fee was lower. she said, “well, no. the lowest fee was $35,000.”

how can that be possible? from the client’s point of view, when they see a range from $35,000 to $135,000, they think these guys at the top end are nuts. so, needless to say, the client took the cheapest proposal because they didn’t believe any of those proposals that said this audit was different.

every proposal that your clients have gotten from the dawn of time has said that this cpa firm is different. but because none of them deliver on that difference, clients won’t believe you. they’re not getting any value, so they change firms because of the fee.

too many people we have leading audit practices don’t believe that audit can and should be relevant. they don’t know how to deliver value, and they don’t know how to drive the importance of making audits relevant to their firms.

back when i was a staff auditor at mcgladrey, i saw many ways that we provided value to the client. sadly, much of that has been lost. one way we provided value was simply talking to them. here are a few other examples of how we added value to clients by sharing our insights.

one of our clients didn’t seem to be making the profit they should have been, so we performed a cost analysis to see if we could figure out why. their biggest customer had a lot of people outside of production who were assigned to that one account, so we applied activity-based costing to see what the real cost of serving that client was in terms of time and effort. when we looked at all the dedicated costs for that client that weren’t included in the cost of goods sold, it turned out that they were losing money on their biggest customer. while the audit was going on, one big customer was requesting a further price reduction, which the company was contemplating accepting. but when we shared our analysis with them, they saw that they instead needed to raise prices for that customer.

in another case, our client thought they were selling things at a profit, but their costing system was a mess. so, we performed an analysis to see what they were including in cogs and what a realistic overhead calculation would be. we determined they were losing money on a particular product line, so we advised them to drop that product line.

if we had just been providing the basic compliance service of an audit report, they would never have gotten those insights that helped them strengthen their businesses.

but i’m an optimist, and i believe that we are capable of delivering relevance. relevance can be woven into the fabric of a firm culture, and that benefits both our clients and our firms.

posted on march 18, 2024