Organizations are frequently faced with the need to hire a firm to audit their financial statements. It can be tempting to issue a request for proposals and select the firm that responds with the lowest bid. Afterall, since there are so many standards that govern financial statements and audit engagements, is there really a difference in audit quality from one firm to the next? The answer to that question is a resounding yes. A 2016 analysis by the AICPA found that 55% of audit engagements were materially non-conforming. A nonconforming audit engagement could lead to headaches for the audited organization, as their auditor may be required to perform additional procedures or withdraw and reissue their report. In addition to conducting a conforming engagement, a quality audit firm can help identify significant risks or weaknesses in an organization’s operations and internal controls that can be addressed before a problem arises. To identify a quality audit firm, organizations should obtain and review the following information:
- The results of the firms most recent peer review. Audit firms are required to undergo peer reviews every three years. Peer review reports are a good indication of whether a firm has a system of quality control in place that allows them to conduct their engagements in accordance with applicable standards. When reviewing a peer review report, you want to hire a firm that has received a pass rating on their peer review.
- A list of audit clients the organization has served that are similar to your organization. The AICPA analysis of nonconforming audit engagements found that they are most commonly conducted by firms that only have a few clients in a given industry. In general, the more clients a firm has in an industry, the more likely they are to have expertise in that area.
- Detail of the professional qualifications of the individual auditors who will work on the engagement. Some items to consider include how long an individual has been practicing as a Certified Public Accountant (CPA), if they hold any other relevant licenses or professional designations, and if they have obtained required and relevant continuing professional education.
Price will always be a factor when considering which firm your organization should select for its audit, particularly as the effects of COVID-19 continue to stretch resources and budgets. However, price should not be the primary consideration. As with most services, with an audit firm you often get what you pay for.