developing a deep understanding of an industry is a surefire way to make your audits more relevant.
by alan anderson, cpa
transforming audit for the future
making the audit relevant doesn’t stop when the audit report is signed. to demonstrate your value and stand out from the competition, deepen the relationship with the client.
more: exceptional audit client service demands effective communication | deliver more audit value by getting out of the conference room | six essential elements in audit planning | before the audit: more than just planning | five crucial attributes for successful audit leadership | put the ethics code to work for your clients and your firm | is audit in crisis because of definitions?
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far too often, the exit conference is a wasted opportunity to demonstrate the relevance of the audit. that’s why i recommend that a standard powerpoint presentation be used to discuss the audit. this will include the required communications and ideas for business improvement and will be designed to facilitate open-ended, two-way communication. here’s a basic outline of the information to be covered:
- results of the audit
- high-level overview of the financial statements
- industry and competitor trends
- economic climate
- key performance indicators (kpis) compared to the industry (both financial and strategic)
- operating improvement ideas
- internal controls
- governance communication
to stimulate discussion, present the information as bullet points, not paragraphs. this way, the information is conveyed in a conversation rather than by reading.
incorporating a culture of relevance at your firm doesn’t stop with your processes and systems for completing an audit. you also build relevance through your choices of the kinds of clients your firm works with, and by providing those clients with the kinds of services they need when they need them.
demonstrate relevance by specializing
nothing drives commoditization more than trying to be all things to all people. now, smaller firms might argue that they don’t need to specialize because they’re not working with terribly complex businesses, but they can work with every kind of small business that comes their way. “just give me a balance sheet, and i can audit anything,” they say. twenty years ago, that was a common belief, but even back then, that was a fallacy. today, as businesses become more and more complex, it’s absurd even to think that.
some may say that if a firm audits small organizations – which may only have a couple million in revenues or less – you can get away without an industry specialization. and it’s true that you can certainly accomplish the compliance function for these smaller entities. you can get them an audited set of financials with the appropriate opinion.
yet, the likelihood of your ability to bring relevance to that client concerning their business activity is much lower. you might be able to give them some pointers on making their back-office accounting more efficient. but they’ll likely be more interested in your understanding of sourcing material for their manufacturing operation differently. or how to staff their restaurant adequately. these kinds of high-level, industry-specific insights are absolutely invaluable to these small clients.
you can only provide these insights if you have an industry specialization. developing a deep understanding of the industry is a surefire way to make your audits more relevant.
i always remind people when they’re doing work for nonprofit organizations that not-for-profit is a tax structure, not a business purpose or industry. all businesses need revenue to carry out their business purpose, whatever that might be. that business purpose might be different for a nonprofit because it’s not operating to build personal wealth but to fulfill a mission that serves the greater good. regardless of the business purpose, a business needs revenue to fulfill that purpose.
when you understand your clients and are committed to providing relevance, it’s easy to see what services would be helpful for them. for example, cash flows kept clients up at night in the covid-19 era. this was not a new need, but it became urgent. so, it should be a slam-dunk for auditors to help them with this.
there are tools out there that clients can plug into their general ledgers, add a few parameters for how their business model works, and have a dynamic cash flow projection. some people will want something that updates in real time, while others only need a monthly update a few weeks before they pay their bills. you can even build a monitoring bot that alerts when it looks like cash flow will be a problem. this may sound like science fiction to some auditors, but that technology is available today.
none of these ideas for adding relevance require additional equipment or extraordinary investments beyond taking additional time to ask questions and think about what those questions reveal. while it’s true that this extra inquiry will require more time and that additional time will have to be baked into the schedule, the benefits far outweigh the costs. remember that completing endless checklists also takes more time but adds little relevance to the audit.
one response to “use eight audit exit items to deepen client relationships”
tony zecca
great article and idea that is a sure fire way to not just talk about value but actually delivering it to every client.
making the audit about value and not compliance is a struggle that has been going on for so long. you are absolutely correct in that audit partners need to become not necessarily experts in every industry they audit but reasonably conversant.
it does not take too much time to do some research to understand what is happening in an industry is not that hard. the real challenge though is having the talent to deliver when a client says “how can you help me with this issue?”.
without an answer to that, the exit conference goes nowhere and that is why firms need to have talented advisory staff or a strategic partnership with a firm that can deliver that talent.
nice article