Have you tried to get a loan for your business and the bank had the nerve to question the validity of your financial statements?
Are you in need of an external audit for your business? All because someone had the nerve to question the validity of your financial statements. Don’t take it personally. It’s a standard practice for a variety of reasons, and the law in some situations, to require an external audit. Now the question becomes: how do you find the top audit firms for what you need?
11 Steps to Vet the Top Audit Firms for Your Business
This process is repeatable. Take time to create a list with online searches and talking to trusted experts in your industry. Then narrow down that list by making sure they meet the requirements you need and are experienced in your industry. Then you’ll vet the top audit firms on your list. If you’re not comfortable with any of those, then simply repeat the process and expand your top list and vet them until you find the best one for your business.
Create a List
1. Stop Using Lazy Google Search Terms
Do not just type “independent audit firms near me” into a standard browser. Generic online searches only surface the companies with the biggest advertising budgets, not the ones best suited for your operation. Include your specific industry and other needs you have in the search.
2. Interview Your Trusted Network
Talk directly to your corporate attorney, your commercial banker, or your fractional CFO. Lenders and corporate lawyers review independent financial statements every single day. They know exactly which local accounting firms have a flawless reputation, and they know which ones raise immediate red flags with credit committees.
3. Review Your Industry Peers
Look closely at the verified financials of businesses in your industry that are slightly larger than you. Find out exactly who signed their formal audit opinion letter. This step gives you an immediate list of candidates who are already familiar with the specific regulations of your market space.
Narrow Down Your List
4. Match Firm Size to Your Scale
You must match the scale of your business to the tier of the accounting firm you hire.
- The Big 4 (Deloitte, PwC, EY, KPMG): These massive organizations are only necessary if you are running a giant multinational brand. Or preparing for a major public IPO for large businesses. Otherwise, your small business will be ignored, and you’ll pay premium rates.
- Mid-Tier Firms: Excellent groups for mid-market businesses and growing regional operations.
- Regional and Local Firms: Perfect for small-to-medium private companies. You get direct attention from external auditors at a much lower price point.
5. Verify the Correct Professional Certifications
Verify their external auditors are licensed CPAs (Certified Public Accountants). Only a CPA is legally authorized to perform financial statement audits. While EAs can sign your tax return and help with a tax audit, they are not authorized to perform an external audit, because they are limited to dealing in tax-related matters only.
6. Demand Niche Sector Expertise
Accounting frameworks change drastically depending on your industry sector. A firm that specializes in checking standard manufacturing plants will be completely lost trying to audit a software company with complex multi-year revenue contracts. Always ask potential firms a direct question: “How many current clients in our specific niche do you actively audit?”
Vet Your Top Prospects
7. Force a Formal RFP Process
Once you have a short list of three to five potential accounting firms, issue a formal Request for Proposal (RFP). This step forces the firms to pitch their services directly to you. A high-quality RFP requires them to outline their team’s specific experience and provide a clear, binding price quote.
8. Validate Peer Review Ratings
By law, CPA firms that perform financial statement audits must be audited themselves by an outside accounting firm every three years. This is called a Peer Review. Ask every candidate firm for a copy of their latest Peer Review report. You are looking for a clear rating of “Pass”. If they received a rating of “Pass with Deficiencies” or “Fail,” walk away immediately.
9. Listen for Deep System Questions
Pay close attention to how the firm behaves during the proposal interview. A poor firm will spend the entire meeting talking about themselves. A high-quality firm will ask proactive, deep questions about your internal accounting systems, your physical inventory tracking, and your future growth plans.
10. Lock Down a Stable Engagement Team
Public accounting is known for high staff turnover. Ensure your engagement contract promises that the same core senior manager will stay on your account for a few years. A stable team ensures you will not waste valuable time retraining new entry-level staff every single January.
11. Run from the 40% Lowball Quote
If one firm quotes you an overall fee that is significantly lower than everyone else, do not celebrate. This is a massive trap. They will either do a sloppy, rushed job that gets instantly rejected by your commercial bank, or they will hit you with massive extra cost fees halfway through the process when they conveniently discover at that time how much manual work is actually required.
What to Do Next
A great audit firm provides a detailed Management Letter at the end of the multi-month cycle. This letter provides free, expert advice on how to tighten your internal accounting controls and improve your daily business operations.
An external audit is an expensive, stressful, and time-consuming process. Before you spend thousands of dollars hiring an outside firm, you need to be absolutely certain your business actually requires one. Many banks and lenders will accept a simpler, lower-cost reviewed financial statement instead.
Let’s look at your situation together to verify what your business actually needs before you sign an audit contract. Schedule a consultation with our team today to verify your requirements.