Audit Partner at RSM Poland
Reaching out to you through different communication channels, we have recently extensively discussed the specific nature of the work of an auditor and the issues connected with their (proper) selection. We would also like to remind you how a company may benefit from being audited. We have already mentioned that it is a good thing if an auditor is your business partner for years, but now we want to show you what this is like in practice: what the benefits an auditor may provide to the audited company are and what the client is actually paying for.
Unfortunately, for many companies, an audit remains somewhat of an inconvenience. And it does not have to be this way. An auditor’s visit to the company may prove to be very valuable for the audited entity. An auditor is usually a well-educated professional with extensive professional experience, as they have audited many different entities, gained insight into different industries and come up with solutions to all kinds of problems, both common and those that are not so common. The observations they make in the course of an audit may turn out to be invaluable and provide a genuine added value to the audited company.
The guidelines a statutory auditor offers during his audit visit to a company may take on different forms, from a casual conversation to a formal letter to the management board/ supervisory board. This letter is something we want to discuss today.
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The institution of a letter to the management board: when can an auditor be required to provide a formal letter presenting the arrangements that have been agreed?
Based on my experiences, in particular with German-speaking clients, I can say that it is a good practice to always send a letter to the management board and/or the supervisory board as an audit follow-up. This also makes sense for audits performed in consecutive years; even if the problems earlier reported by the auditor have already been solved, such a letter is expected. I would even go so far as to say that, being aware that a formal letter often means more than what is being said during a meeting or a teleconference, I would not wait till the audit has been completed, and send a letter to the company’s management or a supervisory board earlier. In my opinion, it is a good idea to communicate all the risks, doubts or suggestions for improvement even before the closing of a balance-sheet year. The client will then have some time to consider the auditor’s findings, follow their suggestions and correct the most common errors, e.g. by way of improving the in-house control system. In particular, if the statutory auditor clearly states in their letter that they are awaiting and demanding a response of the management board or the supervisory board.
Please note that a letter to the management board is confidential and addressed only to the company’s management. Its content is not significant enough to affect the statutory auditor’s opinion expressed in the audit report. A letter to the management board and/or the supervisory board includes those auditor’s ideas and views that have emerged in the audit process and can be used by the company to improve its day to day operations. What is important, you should not be afraid of this letter: it does not mean that you will receive a qualified opinion and it will not result in additional disclosures in your financial statements. However, this may be the first step to heal the situation within the company, e.g. by prompting the managerial staff to go ahead with deeper analyses aimed at reducing the tax risk. This letter should first be addressed to the local management, as they need to have an opportunity to analyse the actions and correct them, if needed. It is often the case that such “healing” of the organisation becomes a breakthrough for its future and performance. Therefore, any recommendations made by the auditor should be approached not from the perspective of the cost of the audit itself, because the audit must be carried out regardless, but in the context of a valuable advice that may bring you many benefits at the end of the day (big savings). For these reasons, even entities that are not required to have an audit performed, should consider contacting a statutory auditor, who may test their business accounts and in-house control system, not necessarily performing an audit of their financial statements. This kind of commentary or report from an external expert is always an added value for the company.
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