Tip of the Week: Choosing the Right Auditing Firm
By David Feldman at 20 April, 2010, 5:55 am
If you are going public and your financial statements have never been audited by an independent accounting firm, in most cases you have to hire a firm to perform this audit. Usually it covers the last two full fiscal years. The auditing firm must be both registered with the US Public Company Accounting Oversight Board (PCAOB) and, if the firm is a foreign firm, approved by the SEC to perform audits of US public companies.
What is an audit? The auditing firm does not, and cannot, prepare your financial statements. Someone else knowledgeable about preparing what you need has to do that. Then the auditing firm spot checks a number of different items to be sure that the preparer did a good job, that there is no evidence of fraud and that things have been properly accounted for. They talk to company counsel to make sure there is no litigation or threat thereof. They review corporate records and invoices. It’s basically a very thorough double check. Then they issue an opinion regarding the review.
There is no “one size fits all” approach to choosing an auditing firm. It depends on the size of your company, the industry and where it is located, among other things. In most cases, companies going public through a reverse merger or self-filing are not of a size to make it cost-effective to use one of the top “Big Four” accounting firms with international offices. However, I have seen Big Four firms do a very thorough job for middle-sized companies. Since Sarbanes-Oxley passed in 2002, unfortunately, your auditing firm is forced to be more adversarial with their own client than ever.
When interviewing potential auditing firms, think about asking the following questions: what is the likely cost of the audit? how much access will you have to the partner on the matter? how much internal quality control and additional review after the audit is complete is required? what is the estimated time to complete the work? what could provide unexpected increases in cost or delays in time?
Good luck!
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