don’t try to wear too many hats. pick your specialty area and become a guru.
by alan anderson, cpa
transforming audit for the future
industry expertise is essential for businessmindedness. for me, the primary ingredient for building a successful audit practice is to avoid taking on work that you don’t understand. too many firms say they can audit any balance sheet, but that’s when they can get into trouble. many firms get sued because they made a bad business decision. they thought they could take on this unique industry and get it right. if you dabble in any industry, you will put your firm and yourself at tremendous risk.
more: four questions to make your firm more successful as a business | move to advisory and assurance with relevance | how ‘business expert cpas’ get their own business wrong | say adios to audit fee pressure | eight items to cover in the audit exit to deepen client relationships and prove value | know your three audit w’s | planning lays the foundation of audit relevance | how do we drive relevance in audit? | before the audit: more than just planning | are you correctly identifying the relevance intersection? | lack of relevance drives audit commoditization
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when the u.s. department of labor looked at the quality of employee benefit plan (ebp) audits, they found plenty of problems. that 2014 study found “a clear link between the number of employee benefit plan audits performed by a cpa and the quality of the audit work performed.” almost half of the firms the dol looked at performed only one or two ebp audits per year, and 75 percent of those had deficiencies. over half of those (56%) had five or more deficiencies.
in contrast, among the firms that performed 750 or more ebp audits per year, only 12 percent of their audits showed any deficiencies, and only one of the 25 audits they examined had five or more deficiencies. that one audit with the most deficiencies “presented unique audit situations not normally encountered in performing a routine plan audit.” this clearly demonstrates that with repetition comes expertise. now, i don’t know about you, but i wouldn’t want to risk putting my firm in the crosshairs of a regulator like the dol by taking on work i don’t understand.
during your career as an auditor, how often were you thrown into an audit in an industry you’d never seen before? of course, that was the norm for your first few years. but i’ve talked to plenty of managers who, even seven or 10 years into their careers, got assigned to an audit in an industry they’d never seen before and that no one in the firm had ever worked with before.
how can we really focus on what the risks are and where the challenges are if we have only a limited understanding of the organization and the industry in which they operate? you can’t expect to get it right if you don’t understand an industry.
taking on the right work means structuring your business to build on your strengths. i really believe firms of all sizes and shapes need to have industry expertise. building expertise means you’re not doing just three annual audits in one area but maybe 10 or 15. you avoid areas that aren’t your strength unless you’re committed to building expertise in that area.
how to build industry expertise
if you want to take on a new industry, then you need to invest in training for you and your staff to learn everything you can about it. don’t just go to audit training – go to the industry conferences too. that will set you apart from the firms that don’t do that. plus, being the only cpa at a conference for beverage distributors can be a great way to meet prospective clients.
another way to quickly build expertise is to move someone from that industry into your firm. auditors who treat the industry-public accounting divide as a revolving door generally make some of the best auditors around. spending time on both sides helps them understand how businesses work, how information flows through an accounting system, and how the different parts of a business support its overall goals, as well as what auditors are looking for.
another way to build industry expertise is to send a few team members to work with your clients during the off-season. most auditors have spent virtually no time doing the work of an accountant in the industry. they have little idea about how the accounting records are assembled, but they try to tell corporate accountants and controllers how to do their jobs.
think how far ahead your team would be if you had a few members who had firsthand knowledge of how a client’s erp worked and the processes that are needed to record transactions in that erp.