Mar 29 What’s in a Name? Not Much, if They Don’t do the Whole Job
There was a time when every tech company thought they had to bank with Silicon Valley Bank. They needed that big name to make them feel confident and successful. If you didn’t have an account with SVB, you were nobody.
We all know how that turned out.
It’s no different with accounting. Many businesses think they’re buying safety and security if they choose the biggest-name firms for auditing. That’s not turning out to be such a great decision either.
Good business decisions come from figuring out what you actually need, then looking for the right firm and the right team to meet those needs. And better business decisions come from doing the due diligence it takes to confirm your auditor actually has the capabilities and the expertise they say they do, to make sure they are the right fit for your specific company, and to ensure they’ll provide you with all the services you need.
For the biggest accounting firms, auditing has become a loss leader. They make their big money doing consulting work. They tend to do the audit and take their lumps in hopes that they will get more lucrative business from your company.
From your business’ point of view, you have to do your audit, and it typically provides very little value. There’s not usually much in the way of recommendations as to how to improve the business. But there is more to get from your audit transaction than just a piece of letterhead; a good auditing firm should be providing valuable insights.
If an auditor is really digging in and understanding how your business works, there is never — never — a situation when they should not have a suggestion or recommendation as to how to make things better, whether it be from an operations, risk-management or internal-control standpoint. But to do this, auditors need to be paying full attention to you and your business.
An effective audit takes a lot of time and effort from both the client and the accounting firm. We really get in there and turn over all the stones and ask all the questions and evaluate whether the company will continue to be operational in the future.
That’s precisely why you want a team that’s going to both watch your back — and be an objective, transparent third party. You want them to be open and honest about what they see happening. If your accounting firm is only doing your audit as a path to a consulting engagement, how diligent and how honest are they truly going to be?
“Auditors are always under the microscope when the company fails shortly after the issuance of a clean opinion,” said Douglas Carmichael, former chief auditor of the Public Company Accounting Oversight Board. “The shorter the period, the greater the concern would have to be.”
SVB failed 14 days after their audit was completed; for Signature, it was 11 days. In the cases of these banks, where was the deep dive? If the auditors had been really paying attention and fully understood how these businesses operated, they should have seen the issues coming down the pike.
What’s in a big name? Nothing, if they’re not doing their job. If you’re not sure your auditors are giving their full attention and providing value to your business, let’s talk.