How to Find the Right Audit Firms
Audits ultimately come down to one thing: trust.
As an investor, can you trust that the financial statements of the company in which you are investing are accurate, and that the decisions you are making based on those statements are sound?
As a manager, can you trust that the cashflow report on which you are basing next quarter’s strategy are correct and complete?
As a government agent, can you trust that the organization to which you have awarded millions of taxpayer dollars is using the funds according to your regulations? Can you trust they have the proper controls in place?
An audit, when performed by a Certified Public Accountant (CPA), tells these various stakeholders, ‘Yes, you can.’ It’s the reason investors, managers and governments can be confident in the information presented by a company or organization.
An audit is one of the most important accounting functions, and it’s something every business and nonprofit should understand. In this short article, we’ll break down the basics.
What is an audit?
An audit is simply a process of verification. Auditors may review anything from a company’s financial statements to internal controls or other systems within the organization.
As we mentioned above, the goal is to provide an objective, thorough and accurate analysis of the organization, whether that’s verifying the claims of a business’ financial statements or ensuring that a nonprofit organization is complying with federal law.
The 3 types of audits
Audits come in three general forms: internal, external and IRS-related.
In an internal audit, an employee will review their own organization’s systems and finances.
Internal audits can be valuable; they’re a proactive way to identify weak points, make sure the data your company is reporting is accurate, and resolve issues before they become bigger problems.
However, because these audits are being performed by an internal employee, rather than an unbiased third-party, the results usually can’t be used to comply with regulations or verify financial data for investors.
That’s where external audits come in. In an external audit, an organization partners with an independent, qualified professional (a CPA) outside the organization to perform the audit.
When performing an audit, a CPA must follow a set of government-issued guidelines known as the Generally Accepted Accounting Principles, which detail how an audit will be performed and reported. Because the CPA is an objective third-party with no personal interest in the outcome of an audit – unlike internal employees, they don’t have to worry about the personal and professional consequences of reporting potentially negative results – the results of their audit can be trusted by stakeholders and used to comply with government requirements.
One common variety of external audit is the single audit. When organizations expend more than $750,000 of certain federal awards, they are required to have a single audit performed. In that case, an external auditor, a CPA, from a single audit firm will review the organization’s controls and determine whether they followed the guidelines of the agencies that awarded the funds.
You can learn more about single audits in our recent article, which explains how these audits are performed, why many organizations are required to perform them for the first time, and what you can do to prepare.
Finally, the third type of audit is performed directly by the Internal Revenue Service (IRS), usually to verify the accuracy of an organization’s tax return.
Often, these audits are triggered at random. The IRS uses algorithms that analyze and compare returns, then select certain returns to be audited. However, an audit will occasionally be triggered if an organization has done business with another company that had errors on their tax forms.
The right audit firm has these characteristics
All CPAs follow the same guidelines when performing an audit. However, the experience of working with one CPA can be dramatically different from another.
Accuracy, objectivity, timeliness and efficiency are a must, but a truly effective CPA will be as talented at communicating as they are at auditing.
Here are a few things to look for in your audit firm:
- Industry-specific specialization: If you represent a nonprofit organization, look for a nonprofit audit firm that has worked with numerous similar organizations. If you represent a manufacturing business, look for a firm that has audited other manufacturers in your region.An auditor with experience in your field will not only understand the financial side of your business; they will understand how to communicate with you throughout the process and how to present information in a way stakeholders will understand.
- Low turnover rate: Many businesses and nonprofit organizations must perform audits every year. If that’s the case, you don’t want to be working with a different auditor every year; you want to work with the auditor you know and trust, the person who knows your business and how to communicate with you and other stakeholders.You can save yourself the hassle of transitioning to new auditors year after year by working with a firm with a low turnover rate. (Sometimes you can find this information online, but you may have to ask around.)
- Good people skills: As we mentioned above, good auditors aren’t always great communicators, but you really want a balance of both.Although they must remain objective, an auditor who is an effective communicator will not only perform the audit in a timely and efficient; they will also set clear expectations, communicate with you regularly, explain any issues that arise, and ensure you understand the implications of their findings.It can be hard to find accountants who are as good at communicating as they are at auditing. But as anyone who has found a CPA who excels at both will tell you, it’s worth it.
About Dugan & Lopatka, auditors in Chicago, IL
For nearly 50 years, the CPAs at Dugan & Lopatka, one of the leading audit firms in Chicago, have worked with numerous businesses and nonprofit organizations to perform external audits, single audits, IFRS International Standards audits, Employee Benefit Plan (ERISA) audits, and a variety of audit services and due diligence work.
Experienced, highly specialized, and known by our clients as excellent communicators, we make the auditing process as efficient and seamless as possible.
Learn more about our auditing and auditing-related services here.