Top 5 Ways CFOs Can Fine Tune Relationships with Outside Auditors

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Top 5 Ways CFOs Can Fine Tune Relationships with Outside Auditors

There are few service provider relationships that are more critical than the relationship between a public company CFO and their audit partner. It has been said that the audit field has become highly commoditized. However, what may have normalized from an audit fee perspective, is anything but homogeneous. This is especially true when it comes time for the year-end audit, the issuance of the audit opinion, and the dreaded, closed-door Audit Committee meeting.

In 2002, the Sarbanes Oxley Act forever transformed the relationship between auditors and public company CFOs, introducing four major changes for most public companies:

  • The CEO and CFO would need to personally certify the accuracy of the financial statements and could face civil or criminal charges and potentially even jail time for serious violations.
  • The “integrated audit” was born. Auditors would now issue an audit opinion on the financial statements and be required to attest to the effectiveness of a company’s internal controls.
  • The Public Company Accounting Oversight Board (PCAOB) was created to enforce compliance of firms auditing public companies.
  • Auditor independence requirements were bolstered, significantly limiting non-audit consulting services that could be provided to a public company audit client, and mandatory lead audit partner rotations were initiated.

The tidal wave of regulations stemming from the Sarbanes Oxley Act sent shockwaves through public companies. Small- and medium-cap companies struggled with the spike in compliance and regulatory costs.

The emphasis around regulatory oversight and CYA (a technical term in accounting) for audit partners skyrocketed. Audit partners were increasingly excluded from key decisions on significant business transactions, which they sometimes came to know via Twitter or The Wall Street Journal. That being said, it’s still possible for a CFO to have a collaborative and productive relationship with their auditors, and in particular, the audit partner. Here are five tips and recommendations for fine tuning this vital relationship:

  • Audit [Partner] selection. When selecting auditors[1], it is advisable to work with a reputable firm that can meet a company’s needs based on size, location, complexity, and industry. Selecting the firm is only half the battle. It is equally critical to work with a great audit partner. Your audit partner is the one in the trenches with you when there are audit sticking points. Your audit partner can also be an ally in high-stakes conversations with their national office, the SEC, or when structuring transactions.
  • Reasonable assurance is not a guarantee. Auditors apply a risk-based audit approach to provide reasonable assurance that the financials are free of material misstatements. This requires an appropriate understanding of the complexity of the business and the areas of greatest audit risk that could give rise to a material misstatement. The audit plan and team is developed accordingly, placing appropriate emphasis and resources on the areas of greatest complexity and risk. CFOs can assist by getting the auditors involved in discussions early, including identifying areas where specialists or their national office may be needed.
  • Audit vs. colonoscopy. Yes, you read this correctly. Just hear me out. A public company audit is like a colonoscopy after the age of 40. It’s a must, but you still want to make it as painless and uneventful as possible. As a former auditor, as much as I believe my clients enjoyed having me around, they wanted me gone as soon as the audit was done. From the inception of the audit, the goal for all parties should be to bring closure to issues so that they aren’t looming until the last minute. Last-minute issues increase the risk of surprises, and whether it’s an audit or a colonoscopy, no one likes surprises. CFOs can help achieve this objective by ensuring the company’s records are in order, having appropriate audit support, and by bringing in trusted advisors that can help ensure the company’s ducks are in a row.
  • Sharing is caring. CFOs should be able to equally share both good and bad news with their auditors. Audits should kick off with a summary of a company’s significant transactions and transparency and alignment on key focus areas. Both parties should ensure they are on the same page throughout the audit, and if there are deviations, make sure they are raised in a timely manner. If it was a bad quarter, own it. Do not try and divert attention with shiny objects. Auditors and investors will see right through it.
  • [Institutional] Knowledge is power. Auditors need to know your business and industry in order to understand how changes in the business impact the accounting, not the other way around. The tail shouldn’t wag the dog. CFOs should know how to translate the company’s story, and if accounting rules change, how to make that story resonate with the right audience. CFOs should not try to find another book. Trusted peer forums and working groups can be extremely beneficial tools for both CFOs and auditors.

In my career, I have seen several functional and dysfunctional CFO and auditor relationships. There are times when I have felt more like a mediator or psychologist than an accounting advisor. Much of getting on the same page requires stepping into each other’s shoes.

An audit partner should feel comfortable looking a CFO in the face and telling them they are wrong. Conversely, CFOs should be able to respectfully disagree and provide the basis for their position. Disagreements between a CFO and audit partner should not be taboo like speaking about politics at a family get-together. Debates are healthy and increase awareness.

I have always said that accounting isn’t brain surgery. Deciding between debits and credits is not life and death. I worked with a very well-respected partner that would always tell us to communicate and collaborate. This same advice is just as applicable between CFOs and auditors.


[1] Editor’s note: For more on audit firm selection, please see: