The more independent your auditor, the better the service you get. This week I have a guest article from, Detlev Anderson, a partner in accountancy firm Ryecroft Glenton, who offers his perspective on an important issue for clients. Many businesses and charities value long-term relationships with auditors, seeing them as trusted and knowledgeable advisers, who are able to comment on a wide range of business topics. These professionals are also in a unique position to provide independent assurance to stakeholders.
If a firm has been working with you for ten, or even twenty years, why would you necessarily want to change? Surely their understanding and experience will be invaluable? It is, however, important to remember that this very familiarity can actually be a potential problem. After all, it might possibly threaten the auditor’s independence. In short, the relationship can get too ‘cosy’.
One solution, which you often see in major public interest entities, is the periodic replacement of audit partners. Another is the regular tendering of audit services. (We are currently seeing a spate of major PLCs effectively swapping their current Big Four auditor for another.)
These larger businesses generally have strong internal controls and are often less reliant on their audit firm to provide additional business advice, whereas smaller organisations (which usually have less stringent corporate governance requirements) may well be more dependent on their audit partner. So is it possible to maintain auditor independence without throwing the baby out with the bathwater?
In my view, the answer is yes.
Directors, trustees or governors are right to value the advice and experience of their auditors, but must also satisfy themselves as to their independence and integrity. They can do this by ensuring their auditors employ at least some of the following safeguards:
- quality assurance reviews carried out by another partner within the firm to review areas of the audit file which might have been ‘coloured’ by the other work done by the firm;
- membership of an organisation such as HCWA, which exists in part to provide member firms with training and quality assurance reviews of a sample of their work;
- use of different teams of staff, e.g. one preparing a tax computation and another carrying out the audit;
- the timely training of all partners and staff; and
- the use of regularly updated audit programmes to ensure full compliance with changing statutes and regulations.
In an environment such as a charity, it’s particularly important for trustees (who are unpaid volunteers) to be clear that the auditors are independent. Look for evidence of clear, structured procedures when it comes to reporting. Not every trustee must see the audit planning document, but they should have the opportunity to read it. Generally there is a benefit for the audit findings report to be circulated to the whole board, rather than just the Audit Committee.
Once you have addressed some of these questions and have received appropriate assurances, you can then enjoy the benefits of using trusted and knowledgeable advisers, without being concerned that their advice is not completely objective.
If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk