What to Expect from Your Auditor and p What Your Auditor Expects from You October 19, 2007 McGladrey & Pullen, LLP is a member firm of RSM International – an affiliation of separate and independent legal entities.
PRESENTERS • John J. Gilberto , CPA, MBA • Douglas B. Beelendorf , CPA, MBA – Partner – Assurance Services – Director – Audit & Accounting – Over 21 years of experience in O 21 f i i – Over 17 years of experience in O 17 f i i public accounting and industry public accounting and industry – Specifically focused on governmental – Technical reviewer focused on the entities entities governmental entities governmental entities – Serves on the NCACPA – Serves on the GFOA’s Special Governmental Auditing and Review Committee Accounting Committee – Background includes SEC reporting Background includes SEC reporting – Serves on the GFOA’s Special for a large, international textile Review Committee manufacturer – Served on Audit Committee of a privately held company
Auditee vs. Auditor • Auditee • Auditor – Hired by the entity. Independent of – Employees of the entity. Not the entity in fact and appearance the entity in fact and appearance independent of the entity independent of the entity – Report directly to the Board and/or – Responsible to the Board and/or Audit Committee to attest to the Audit Committee providing opinions accuracy of the financial statements on the entity’s risks, internal controls and the entity’s system of internal d h i ’ f i l and financial statements control over financial reporting – Obtain an understanding of internal – Responsible for monitoring and controls sufficient for performing an controls sufficient for performing an maintaining an effective system of maintaining an effective system of audit internal controls – There for a brief period of time and – There everyday involved in the detail performs testing on samples of transactions of the entity t transactions ti
Types of Relationships • None – No support provided whatsoever; segregation epitomized No support provided whatsoever; segregation epitomized • Cost-Benefit – Work performed in consideration of external auditor fee reduction Work performed in consideration of external auditor fee reduction • Partnership – On-going development of audit process building on previous g g p p g p years’ experiences based on risk assessments, audit techniques and information gathered
No Relationship • Pros • Cons – Clear Distinction – Lack of communication • Management is focused on • No sharing of – the needs of the entity – Risk areas • Auditor is focused on – Concerns Concerns attesting to the accuracy of – Entity knowledge the entity’s financial – Duplication of effort statements and – Potentially dysfunctional P t ti ll d f ti l management’s assessment relationship based on lack of of internal control over equity between two groups financial reporting • Quid pro quo Q id
Cost-Benefit Relationship • Pros • Cons – Support sharing and coordinating – Inability to value benefits of of activities where clear value of activities where clear value utilizing internal resources utilizing internal resources proposition exists • Relationships within entity – Results focused – Narrowly focused on specifically – Potentially lower external audit Potentially lower external audit assigned tasks assigned tasks fees – Lack of completely open – Sharing of information communication • Changes in programs Changes in programs • Any reports prepared • Status of open recommendations recommendations
Partnership Relationship • Pros • Cons – Cost-benefits realized – Compromised independence and objectivity – Synergies derived from working together • Particularly when either party is asked to express opinion – Communication of ideas to on the other to Audit improve audit strategy Committee – Free flow of communication and – If communication is not timely, information for better work coordination of work efforts and product planning suffer – Entity benefits from closer coordination of two functions
FOUNDATIONS OF A GOOD RELATIONSHIP • OVERCOMING AUDIT OBSTACLES • COMMUNICATION • PLANNING
COMMUNICATION “In the end, we will remember not the words of our enemies, but the silence of o r friends ” silence of our friends.” Dr. Martin Luther King, Jr.
COMMUNICATION THE CORNERSTONE OF ANY GOOD RELATIONSHIP • Aspects • Aspects • Methods • Attributes • Attributes
COMMUNICATION ASPECTS • Identify parties involved • Identify parties involved • Develop understandings and expectations • Create efficiencies • Create efficiencies • Comply with Standards
COMMUNICATION METHODS • Formal vs informal • Formal vs. informal • Individual vs. group • Timing • Timing – Real time – as issues arise – Set dates – (i e weekly biweekly etc ) Set dates (i.e., weekly, biweekly, etc.)
COMMUNICATION ATTRIBUTES • Accurate • Accurate – Facts, data and analysis • Supportive Supportive – Reassurance, sympathy and connectedness • Persuasive Persuasive – Credible, knowledgeable, captures attention
COMMUNICATION ADDITIONAL THOUGHTS • Be proactive • Be proactive – It’s easier than playing catch-up later • Avoid surprises Avoid surprises • Be creative • Don’t take things personally • Don t take things personally • Step back and take a deep breath • KEEP TALKING!! • KEEP TALKING!!
OVERCOMING AUDIT OBSTACLES • COMMUNICATION • IDENTIFYING PROBLEMS • IDENTIFYING PROBLEMS • EXPECTATIONS • PLANNING • PLANNING • EVALUATE
OVERCOMING AUDIT OBSTACLES COMMUNICATION If this is you you probably didn’t catch that we just went over If this is you, you probably didn t catch that we just went over communication! Hang on, we’re not even half way through yet!
OVERCOMING AUDIT OBSTACLES IDENTIFYING PROBLEMS • Poor financial position • Poor financial position • Poor internal controls • Unorganized and inaccurate financial data • Unorganized and inaccurate financial data • Failure to understand expectations • Lack of commitment L k f it t • Failure to communicate
OVERCOMING AUDIT OBSTACLES EXPECTATIONS – auditee • Early identification and communication of issues y • Help optimizing the audit process • Adherence to deadlines • Responsiveness to auditor’s comments and concerns • Proactive approach to internal control • Hi h l High level of integrity and ethics l f i i d hi
TOP 10 THINGS I DISLIKE MOST ABOUT THE AUDITEE O 0 GS S OS OU U 6. Employees are told only to give name, rank and serial number to any questions asked. 7. Each year, the auditors become the temporary bookkeepers. 8. Last year’s AJEs were never made. 9 9. The client likens a ditors to the Berm da Triangle an thing lost it The client likens auditors to the Bermuda Triangle – anything lost, it must have been the auditor! 10. “The auditors are coming; is the broom closet available?” g;
OVERCOMING AUDIT OBSTACLES EXPECTATIONS – auditors • Qualified staff assigned to engagement • Minimal turnover year-to-year • Flexibility of audit schedule • • Knowledge of government industry Knowledge of government industry • Informed on current events • Effective and timely information y • Added value – beyond the audit
TOP 10 THINGS I DISLIKE MOST ABOUT THE AUDITOR O 0 GS S OS OU U O 6. They keep reversing my entries; I feel like I’m going backwards. 7. They aren’t here long enough to take us to all the best restaurants in town. 8. Whenever they find an error, they do this sneaky auditor detective game and ask if I look good in an orange jumpsuit game and ask if I look good in an orange jumpsuit. 9. They all dress in the same suit, including the women. 10. They turn my conference room into their college dormitory. y y g y
PLANNING SET A GAME PLAN (GOALS) • Written strategy • Written strategy • Joint effort – Agreed to by all parties involved – Agreed to by all parties involved • Balanced – Who does what? Who does what? • Should do’s • Want to do’s
PLANNING KNOW THE SCORE • Discuss with your supervisor • Discuss with your supervisor – Are you ahead or are you behind?
PLANNING DEFINE THE TARGET • Know your aim • Know your aim "You've got to be very careful if you don't know where you're You ve got to be very careful if you don t know where you re going, because you might not get there."
PLANNING DEFINE THE TARGET • Be flexible and creative • Be flexible and creative “I have not failed I’ve just found 10 000 ways that will not work " I have not failed. I ve just found 10,000 ways that will not work. Thomas Edison
PLANNING WORK – WORK – WORK • Prioritize • Prioritize “Thinking is the hardest • Make it a habit work there is. Which is the • Don’t procrastinate • Don t procrastinate reason so few people do it!” reason so few people do it! • Embrace challenges Henry Ford • Make it fun! M k it f !
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