Is Your Company Running by the Numbers?
Here’s how to cope with the new audit rules
Corporate scandals such as Enron’s collapse have led to tough new auditing standards, including new audit changes aimed at small private companies to ensure they properly address risk. Many companies fear that the new Auditing Standards Board’s rule changes—which apply to statements issued after Dec. 15, 2006—will be expensive and confusing.
Not so, says Dave Scudder, managing partner at McGladrey & Pullen LLP. By accounting for such variables as hurricanes in Florida or potential increases in the costs of raw materials, he says, companies can implement systems and procedures to deal with these eventualities. “It should create a more focused and productive audit,” he says.
To get the most from these new audit standards, Scudder says companies should:
- Get started early. The sooner companies contact their auditors, the sooner the auditor can identify areas of potential risk. Familiarity with company operations ranging from inventory pricing to the location of key suppliers can save money by reducing time spent on the audit.
- Check out controls before the auditors arrive. Companies can shorten the audit process by assessing in advance the effectiveness of financial controls such as vendor-approval processes and expense-account oversight.
- View auditors as a resource. Auditors can provide good feedback on the effectiveness of your inventory controls or the reserve set aside to cover unpaid bills, and also can benchmark your controls against those used by other companies to manage these same risks.
- Use the new rules as an opportunity. Because auditors are now focusing on specific company risks—such as inventory spoilage or foreign currency fluctuation—companies can get customized audits that target areas where there is actually risk of financial misstatement.
