Adding Value to Audit Services
Auditing can be seen as one of the least glamorous sides of business. It is a necessary expense and disruption in achieving the filing of the annual accounts. Many cost reduction programs/value add initiatives will simply pass over this expense line. They will deem it untouchable – a sunk cost.
However, the landscape is changing. Organizations across all sectors are subject to increasing regulatory and compliance requirements, driving up audit services complexity and cost. The average audit fee for a public company has jumped 75% since 2018. Moreover, increases are also impacting small and medium sized companies and educational institutions. These increases can often go unchecked within organizations who simply maintain the same audit services provider year after year.
The EU Audit Reform Act and the UK Brydon Review
The EU Audit Reform Act and the UK Brydon Review are working with heightened focus from the Financial Reporting Council. Their aim is to enhance the integrity and transparency of audit services. In 2023, audit firms in the UK were collectively fined around £40 million by the Financial Reporting Council for various audit failures. Notable fines included significant penalties for KPMG, for its audit failures related to Carillion, PWC in relation to Eddie Stobart Logistics and Deloitte who faced enforcement actions related to SIG plc.
Whilst these fines reflect ongoing concerns about the quality and reliability of audits there is also the reputational impact for clients. The association of their company with an audit failure in itself could give rise to concern from suppliers and customers. In addition, Audit Committee members can be held accountable if found to have breached their duties or acted negligently. Liability is potentially arising in cases of fraud, misconduct, or failure to act in the best interests of the company.
Are you happy with your audit services?
It is therefore critical that an organization appoints the right audit firm. The right firm being one in which audit rigour and value add throughout the year is delivered. Ongoing management of the audit service and a push to gain better support from audit firms through the provision of data analytics, training and market insight will often be invaluable to organizations.
It is a great starting question for any KAM and often opens up a wider conversation to which we can offer a solution. As best practice it is recommended that a company should review audit arrangements every 5 years. Then it should ensure change every 10 years. However a company can change an audit firm at any time.
Engaging ERA Group
By engaging ERA, we can start to dig deeper, profiling and documenting the key deliverables an organization really wants from their audit firm. Particularly in uncertain markets. This may include reducing cost, benchmarking and best practice, market insight, data analytics or strategic partnership. ERA run the tender process, aligning internal stakeholders, onsite visits, co-ordination of documentation and delivery a process to meet regulatory and industry best practice requirements.
ERA will take time to ensure you have the right audit firms engaged to meet specific sector requirements. With effective negotiation we will ensure every element of value add and service is incorporated into the audit fee rather than charged as additional extras. We deliver a high-quality outcome, tailored to the objectives of the client. We also implement end-to-end ERA management of the process. This gives back time to stretched CFO teams and ensures Audit Committees are compliant with tender requirements.
Our services are quick to market and generally offered on a fixed fee basis. The split is typically 50% upfront and 50% upon completion over a 2–3 month period. There is the ability to provide ongoing service management ensuring that the commitments made within the tender are delivered. There are also additional benefits gained from this process. These include: forming strong relationships with key decision makers, ability to reinforce the ERA value add and gaining insights into a company’s operations, pain points and forward-looking strategy. This feedback is an extremely helpful reference point for the KAM to identify further project opportunities.
Getting The Most Out Of Your Audit Services
In conclusion, whilst selecting the right audit firm may appear a straightforward process to complete a statutory task, it should not be overlooked. When executed well it provides a great introduction to ERA, bringing significant benefit to the client by adding addition service and value, reducing costs or ideally both. ERA Group can help navigate this landscape effectively. On top of this, we can gain insight into a client’s operational arrangements and ensure the maximum benefit is derived from the audit firm.
