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How to assess the issue of the auditor's cooperation with the management/supervisory boards of companies?

Piotr STASZKIEWICZ
statutory auditor, Audit Partner at RSM Poland

Perhaps a little out of spite, but personally I would like to draw your attention not so much to whether the cooperation of the auditor with the management or supervisory board of an audited entity should be currently assessed positively or not, but rather what perspective to adopt to assess such cooperation. Although cooperation of the auditor with a management and supervisory board looks differently, the objective seems to be the same: added value in its broad sense that the auditor can give to the other party. This is the perspective which I would use to evaluate the cooperation of auditors with management and supervisory boards.

Due to the fact that a management board serves as the function of an agent, appointed on behalf of the owners to run the business, and the auditor is appointed in order to confirm whether the financial statements prepared by the management board contain any material misstatements, auditor - management board cooperation will certainly be assessed differently (from the perspective of a different kind of added value) than auditor - supervisory board cooperation (audit committees).

The management's expectations towards the auditor concern, e.g. such issues as addressing mistakes made by persons involved in the reporting, identification of tax risks or improvement of processes in the organization. Thus, as you can see, those desires to some extent go beyond the scope of a statutory audit, and one cannot blame the auditor for the fact that – while maintaining appropriate principles, professional judgment and scepticism – it turns out that during a subsequent inspection by a fiscal authority the company will be obliged to pay, e.g. additional income tax.

The expectations of supervisory boards and audit committees, in turn, may concern such areas as: information about fraud, risk associated with the dishonesty of the management board, going concern risk, weakness of internal control, significant distortions in the financial statements, and associated risks influencing the owners or a wider group of stakeholders.

This shows that auditors are often caught between a rock and a hard place: on the one hand, they need to perform their mission, which is to issue an opinion confirming that there are no significant issues that would interest the supervisory board or audit committees; on the other hand, they must "operationally" cooperate with the management board that also has their expectations, often inconsistent with the expectations of the owner. And, in addition, all the work of the auditor must be performed in accordance with the rules to meet the principles of the auditing methodology and the expectations of the auditors' supervisory authorities.

Therefore, for both the boards of directors and the supervisory boards, the key seems to be to understand the purpose of auditing a given company. Reconciling the mutual expectations within the framework of the trilateral exchange of views should be before the order, and not after it. As a result, it will be easier both for management and supervisory boards/audit committees to establish the expectations towards the auditor and to constructively evaluate subsequent cooperation in the perspective of what the auditor can and should give them while involving the other party as well. In my opinion, there should be a greater emphasis on this trilateral discussion, and the added value of auditing and improvement in the management board - auditor and supervisory board - auditor cooperation is just a matter of time.

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