How to Select the Right Independent Auditor?

Selecting an independent auditor can be a challenging task.
 
You will want a firm that is experienced with serving local governments, who not only knows GASB pronouncements, federal grant requirements, and applicable laws and regulations, but – most importantly – can assist you in ensuring compliance of these principles.
You will want an auditor who works well with you and your team, not one who simply has a “gotcha!” mentality. In addition, you want one who is friendly, professional, and easy to reach when you need them. Needless to say, you want all this at a reasonable cost.
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Here are some of the most important considerations in selecting (or retaining) an independent audit firm:
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​Qualifications of Assigned Audit Professionals
The key auditing professionals serving you should have an exceptional understanding of both auditing and accounting standards as they relate to your government. Governments function in a unique environment and the auditors need to know governmental accounting, Government Auditing Standards, laws and regulations, Federal single audit requirements, fund accounting, budgeting, and access to public information principles.
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It is important to distinguish between the firm’s qualifications and the qualifications of the specific audit professionals serving you, because even though if the firm may be highly qualified, be sure that the auditing professionals serving you are qualified in the right fields, too.
 
Most audit firms have more than one partner, plus manager and senior accountant, and they each have their own strengths and weaknesses. After working with your auditors for a while, you will better understand their strengths and weaknesses. If you notice any discrepancies between the qualifications they display and the qualifications you need, you should not be shy to request a change in one or more of the key auditing professionals. Examples of reasons you may want to request a change of the audit team personnel are:

• Lacks knowledge of generally accepted accounting principles for governments;
• Uncommunicative;
• Too many unpleasant surprises;
• Late or slow to show up to work;
• Unresponsive to your requests and communications.

The key audit professionals also need to demonstrate a high degree of integrity. They need to be able to stand up to management pressure. They need to be collaborative and responsive to your calls and requests.
 
The best auditors will gain a deep understanding of your organization. They also understand how your financial statements can best tell your story. This understanding helps your auditor identify the areas of biggest risk in your operations.
 
The best auditors do not only provide an opinion on the financial statements. They will tell you what they found, offer recommendations for improvement, and share insights into the quality of your accounting and financial reporting processes.
 
Here is an additional checklist that can help you identify and check the qualifications an auditing firm should possess:

(Click the image to view and download the checklist in editable Word format.)

This checklist can be tailored to your government’s priorities and used to prepare the minimum qualifications list in the request for proposals.

Peer Review
The size of an audit firm doesn’t dictate the level of audit quality. To help you assess whether an audit firm conducts audits in accordance with professional standards, you should obtain the firm’s latest peer review. The American Institute of Certified Public Accountants (www.aicpa.org) requires audit firms to have a tri-annual Peer Review (see the link on the bottom of our homepage to view our latest peer review) to assure compliance with professional standards.
 

References
When engaging an auditor, you should obtain references about the auditor’s work for other clients. See this blog post on how to approach checking your potential new audit firm’s references, and view a list of sample questions to ask during reference checking.
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Independence
CPA professional standards require that the auditor be independent from the organization being audited. Auditors must adhere to the independence standards established by the American Institute of Certified Public Accountants, and the standards established by the Government Auditing Standards, published by the Comptroller General of the United States.
 

Licensing
CPA firms are required to meet the licensing requirements of the states in which they practice. You can verify with the California Board of Accountancy (www.dca.ca.gov/cba) that the audit firm holds a valid license to perform auditing services. You can check your search for a specific CPA firm's license by following this link: https://search.dca.ca.gov/?BD=19&TP=DC

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​Selecting the appropriate external audit firm is a crucial task for your government, that should not be taken lightly. You will probably be living with that decision for several years to come, so it is worthwhile taking your time to make the right choice.

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If you have more questions on how to select the right auditing firm, feel free to reach out to Kevin directly:

[email protected]
(510) 593-5037

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