Changing Audit Firms: A Guide for the Privately-Held Company Mayer Hoffman McCann P.C. is pleased to present this whitepaper on why, when and how to find a new firm for your privately held company audit Executive Summary Changing auditors is not a simple task. It’s relationship based, just like choosing a banker or attorney. However, understand that with the right process in place, changing auditors doesn’t need to be as difficult as one might think. Ultimately, it’s a business decision that is made in order to meet the needs and goals of your company.

Mayer Hoffman McCann P.C. is pleased to present this whitepaper on why, when and how to find a new firm for your privately held company audit. . Changing Audit Firms: A Guide for the Privately-Held Company Key points addressed herein: n  ey reasons why firms change auditors include: poor K service, high staff turnover, missed deadlines, inadequate communication, surprises, fees and more. n  hen an auditor is no longer filling the company’s W needs and change is necessary, the process can be approached with more confidence if there is a clear plan and if all stakeholders understand their roles in the process. n  few critical first steps in making a change include A putting together a needs assessment that will form the basis of your search for a new audit firm, and creating a short list of firms that you will invite to bid on your work. n  chedule meetings with each firm at your office so they S can understand more about your company and specific needs or former issues as it relates to the audit. n  fter you have received final proposals, select your top A candidates and invite them back individually to provide a formal presentation acquainting key members of their firm with your management team. This is an opportunity for them to present in more detail about how they will meet your needs and the value they will provide throughout the engagement. n  ey factors that can help ensure that the selection of a K new firm is successful include independence, size of the firm, chemistry, competence, references, value for fees and industry specialty. n  nce the selection of a new audit firm is made, both O the new firm and the incumbent firm should be notified as quickly as possible, and part of the transition process should include a meeting between your company’s finance team and the entire audit team from your new CPA firm. The relationship between a privately-held company and its audit firm is an important one that should be nurtured. Expectations on both sides must be openly communicated. Mayer Hoffman McCann P.C. A common vision should be forged. Confidential details will be shared, and over the long term, there should be anticipation of growth and prosperity. But, CFOs and their audit firms can sometimes find themselves at a crossroads, with auditors no longer meeting their needs. Not many companies want to go through the process of changing audit firms. However, when change is necessary, the process can be approached with confidence if there is a clear plan and if all stakeholders, including the organization’s finance executives and Audit Committee or Board members, understand their roles in the process. Common Triggers for a Change in Audit Firm â–º Poor service by audit firm  â–º Lack of responsiveness  â–º High staff turnover  â–º Lack of new ideas from auditor  â–º Surprises  â–º Missed deadlines  â–º Lack of industry knowledge  â–º Company outgrew the audit firm  â–º  udit fees that are higher than what A was agreed upon â–º Price too high for perceived value received  â–º Change in company control or management  â–º Company in bankruptcy  2 .

Changing Audit Firms: A Guide for the Privately-Held Company Understanding When and Why to Change Audit Firms While highly-regulated entities such as public companies, financial institutions and not-for-profit organizations are more likely to put their audit work out to bid regularly, private companies usually change audit firms only when there is a compelling reason. Reasons can range from poor service by the audit firm to lack of responsiveness or industry expertise. (See Figure 1: “Common Triggers for a Change in Audit Firms.”) The Players The key players in a company’s financial hierarchy should be involved in identifying needs and finding a new audit firm, including: â–º  hief Executive Officer C â–º  hief Financial Officer C â–º  ontroller and Assistant Controller C â–º  ccounts Receivable/Payable Supervisors A â–º nternal Auditor I â–º  he Audit Committee T â–º  embers of the Board who are regularly involved M in financial issues Figure 2 Know Your Needs and What is Lacking in the Current Relationship With Your Auditors To understand what your company needs in a new audit firm, it’s important to know what is lacking in the relationship with the current audit firm and/or what your needs are going forward based on the direction of the company. The CFO and finance staff members are in the best position to know, as they have the closest working relationship with the external audit firm.

(See Figure 2: “The Players.”) Mayer Hoffman McCann P.C. Important factors to evaluate include: n Accessibility and Proactiveness – Does the audit firm  meet with you regularly? Are the auditors available by phone or email when needed? Do they initiate meetings with you to discuss new ideas and approaches? n Responsiveness – Do the auditors answer your questions in a timely manner with complete information? Do they go beyond the basic answer and offer alternative ideas and solutions? n Overall Communication – Do the auditors share information with your Board of Directors and/or Audit Committee freely, or do they seem protective of management? n Technical Expertise – Does the audit firm have  significant recognition and expertise in your industry or field? Does the audit firm meet deadlines consistently and help your organization meet regulatory requirements? Is the quality and accuracy of its work consistently excellent? n Approach – Are you satisfied with the audit firm’s planning process and approach? Have there been differences of opinion regarding the scope and nature of the audit firm’s testing? n Comfort with the Audit Team – Are the individuals from  the audit firm who service your company easy to work with? Do their personalities mesh well with your staff, and are they accountable? Has the audit team been stable, or has there been frequent turnover? n Fees – Are the fees in line with the value received? Are they in line with what was agreed upon? Are changes in scope agreed to in a timely manner? n Professional Services – Does the audit firm offer  additional professional services – i.e. strategic planning, business consulting, risk and control services, retirement plan services, valuation services, etc. – that your organization may need? When carefully considering all of these questions, you’ll be able to identify or confirm what pain points you have and what will be important to you as you begin your search for a new audit firm. 3 .

Changing Audit Firms: A Guide for the Privately-Held Company Starting the Search for a New Audit Firm Building Your Request for Proposal (RFP) Once the pain points are identified, your Board of Directors and/or Audit Committee and finance staff can put together a needs assessment that will form the basis of your search for a new audit firm. You don’t want old frustrations to be repeated with a new audit firm, and you want to make sure all of the company’s needs – those that exist now, as well as those that are anticipated in the future – are met. If you decide to create a formal RFP, as many organizations do, the distinct needs that are identified during your internal needs assessment should be reflected in the RFP as questions to the bidding audit firms. (See Figure 3: “Building Your RFP.”) Your needs assessment will aid in the process of getting all internal stakeholders on board with the idea of switching audit firms, including the finance staff, the CEO and the Audit Committee. Once they are on board, the question of timing should be addressed.

The company’s fiscal year-end will help determine when the search for a new audit firm will take place. If your year-end is more than six months away, you likely have time to get a new audit firm in place to perform the current year audit. Identify and Reach Out to Firms That Have Shown Interest in Your Company In today’s competitive environment, CEOs, CFOs and company Board/Audit Committee members have likely been contacted by several audit firms. These firms should be the first group to consider in determining who is invited to bid on your company’s audit work.

They have shown an interest in working with your company and likely already know something about your needs. With input from all stakeholders, create a short list of firms that you will invite to propose on your work. Make sure they are firms that have the size, expertise and credentials you require. The number of firms you reach out to depends on you.

How much time can you devote to the search? How many firms do you want to propose on your work before you feel comfortable narrowing down the field? After reviewing all of the responses to your request for proposal, you’ll have a good sense of which firms you feel comfortable moving forward with. You can then narrow the field to three to five firms (or less) that will be invited to meet with you at your office to gather information for a formal presentation acquainting key members of their firms with your management team. Mayer Hoffman McCann P.C. Provide the RFP to the firms you have chosen to submit proposals, and give them a reasonable amount of time – at least one month – to respond. Building Your RFP An RFP typically includes these elements: â–º Cover letter with brief description of your company  and its search â–º Clear deadlines for submitting proposals,  including when and how firms may meet members of management, ask questions and gather information â–º Date or timeframe for when a decision will be  made â–º Detailed description of the services you seek and  the compliance requirements that apply to your company â–º Clear, detailed list of information items that you  require in submitted proposals â–º Process for bidding firms to obtain needed  information and documents (i.e. your previous year’s financial statements) Caveat: There are a number of RFP templates available from web sites and professional associations.

If you use one, be sure to add questions that will elicit tailored responses appropriate to your company’s needs, and delete questions that are not relevant to you. Figure 3 4 . ‘‘ ’’ Changing Audit Firms: A Guide for the Privately-Held Company “ ey factors that can help ensure K that the selection of a new firm is successful include chemistry, competence and industry specialty.” Reviewing and Scoring Proposals Once the proposals are received, each should be reviewed and scored according to how well they addressed the points raised in the RFP. Who evaluates the proposals will depend on the company. In small companies, it’s possible that the CFO and maybe the CEO will evaluate them together. In larger companies, a committee of the CFO, the controller and a member of the Audit Committee or Board of Directors may evaluate them together.

Every company has different needs and should tailor its selection process accordingly. But a few key factors can help ensure that the selection of a new audit firm is successful: n Expertise – While most companies want to work with an audit firm that they like and with whom they feel comfortable, you should remember during the selection process that you are essentially hiring a firm to express an opinion about whether your financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles (or another financial reporting framework). Therefore, the credentials of the firm and the engagement team members should play a significant role in your decision. Mayer Hoffman McCann P.C. n  hemistry of Company and Audit Team – The Board C of Directors and/or Audit Committee, management, and personnel throughout the company all need to work closely with the external auditor, so chemistry among company personnel and the audit firm’s partners, managers and staff is important. n References – Carefully checking the references of the audit firm finalists is a crucial step.

Move beyond the “Bob is a great guy, and we’ve been with him for 20 years” conversation and ask probing questions about the reference’s relationship with the audit firm, particularly how assertive the auditors have been about examining internal controls and making recommendations for change. Be sure to ask if the audit firm is providing any value-added, non-audit services as well. n Fees – Minimizing audit costs may be important, but it is essential to balance the proposed fees with the services, quality and expertise of the proposing firm. Fees should be clearly presented, state what is included and not included, should be fixed, and state that the firm will seek approval before any additional fees are incurred. n Industry Specialty – Audit firms with an industry specialty should provide higher quality audits due to tailored audit methodologies and superior knowledge and technical expertise. Other Factors to Consider – â–º s the firm able to meet your timelines? I â–º s the firm familiar with your systems? I â–º  ow does the firm utilize technology to create efficiency H in the engagement? â–º  hat other tools will be used? W 5 .

Changing Audit Firms: A Guide for the Privately-Held Company The Formal Presentations After reviewing all responses to the RFP, invite the firms to your office for a formal presentation. The meetings are scheduled with selected firms at your office so they can acquaint key members of their firms with your management team. This provides an opportunity for you to ask them to clarify any information included in their proposal as well as respond to those issues and needs that are most important to you. These meetings are crucial to establishing a comfort level and rapport with a potential new audit firm. All members of your key management team should be comfortable with the firm that is selected to move forward. You may want to schedule meetings with all the firms you received proposals from, or you may want to narrow it down to three to five (or less) at this point. Making the Transition to a New Audit Firm Once the selection of a new audit firm is made, both the new firm and the incumbent firm should be notified as quickly as possible. The new firm will probably have specified in its proposal that it has an expectation that the prior year audit documentation will be provided by the predecessor audit firm in order to effect a smooth transition.

Your company – specifically, your finance staff – has an important role in making sure that happens. Mayer Hoffman McCann P.C. Part of the transition process should include a meeting between your company’s finance team, including the Audit Committee or Board members responsible for finance, and the entire audit team from your new CPA firm. This is an opportunity for all parties to get acquainted and share information about how the new engagement will proceed, and is an important step in getting off on the right track. Conclusion Changing audit firms can be a daunting task for any private company, but if you are unsatisfied with your current firm or just feel it may be time for a change, there is no need to delay. Putting the right process in place and knowing which steps you must follow will help you embark on the search with confidence, and assist in making the right selection for your company. 6 .

Changing Audit Firms: A Guide for the Privately-Held Company About Mayer Hoffman McCann P.C. Mayer Hoffman McCann P.C. is a national, independent CPA firm with offices in most major markets and gateway cities throughout the country. While we can pull from our vast array of credentials nationally, our professionals take pride in delivering a very personalized level of service to each and every client. Furthermore, our professionals are committed to the profession and the industries in which they serve clients.

Whether it’s involvement on committees of regulatory bodies in the accounting profession or members of industry associations, MHM’s professionals are regular authors and presenters of accounting content, showing a dedication to their work and to our clients. When you choose Mayer Hoffman McCann P.C., you get proactive, accessible professionals who communicate in understandable terms, and deliver practical solutions on time and with no surprises. We are distinguished by the quality, credibility and insight of our accounting and auditing professionals who take the time to get to know each of our clients and the specific issues they face. Our audit services are designed to: n  xamine your business to identify areas of financial E statement risk. n  educe your risk of material misstatement. R n  rovide informative financial statement results reporting P to your management, audit committee or board. n  eliver effective strategies and recommendations D designed to enhance the value of your business. n  eep you informed regarding pertinent accounting K standards and assist in the implementation of applicable new standards. n  ase the audit process by giving your accounting E personnel adequate lead time to prepare required documentation. n  eet all internal or external deadlines. M For further information on our audit services for private companies or to submit an RFP, please visit www.mhmcpa.com or call 1-877-887-1090. www.mhmcpa.com A member of Kreston International | A global network of independent accounting firms @mhm_pc company/Mayer-Hoffman-McCann-P .C. © Copyright 2015. Mayer Hoffman McCann P All rights reserved. .C. www.kreston.com 7 .