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From: Ramachandran Mahadevan <ramachandran_
To: ICAI CIRC <icai_circ_meerut_
Sent: Friday, 25 January, 2008 10:24:16 AM
Subject: {Brainstormers -CA} Ways to Cut Your Audit Bill
Top 10 Ways to Cut Your Audit Bill
Our list ranges from beefing up internal audit to
avoiding posh steakhouses for those working lunches.
Alix Stuart, CFO.com | US
January 24, 2008
Think there's no way around sky-high audit costs?
Think again. A recent study of 1000 companies by The
Hackett Group found that the average company spends
$584,000 per $1 billion of revenue on audit fees. The
companies that earned the "world-class" designation,
based on a variety of factors, however, paid only
$307,500 per billion— nearly 50 percent less.
What sets the best apart from the rest? Below, we
offer tips and advice from Hackett and a number of
finance executives on how to winnow down audit costs.
1. Beef up internal audit staff. Jeffrey Jones, CFO of
$828 million Vail Resorts, added staff to his internal
audit group last year and dedicated some to helping
the auditors through the company's Sarbanes-Oxley
compliance efforts. He found that the salaries paid
for themselves within a year thanks to a reduction in
audit fees. "Plus, you get to utilize the incremental
staff all year round," Jones notes.
Indeed, Bryan Hall, Hackett finance-practice practice
leader and co-author of the study, says the key
differentiator at companies with lower audit costs is
that external auditors feel they can rely on the work
of the internal auditors.
2. Set expectations with auditors. Hold at least two
planning sessions with your internal team and the
audit firm before the audit starts and agree to a
schedule, says Steffan Tomlinson, CFO of Aruba
Networks. Don't skimp on the details, either—he
recommends that you "probe and agree on the number of
transactions the auditing firm will do in each
category."
3. Kill (or save) some trees ahead of time. Nothing
the auditors ask for should be a surprise, so all the
necessary analyses and paperwork should be done by the
time they walk in the door. At Vail Resorts, Jones has
some of his newly-hired staff prepare "very detailed
support binders which contain support for every single
number which is included in any public filing.."
Appoint one person to handle auditor information
requests, and make copies of the documentation so that
you don't have pass it back and forth. Better yet, set
up the documentations electronically, and save some
trees. Just do it before the auditors arrive.
4. Keep your auditor on speed-dial. Art Technology
Group CFO Julie Bradley says she keeps her auditors in
the loop on all major developments throughout the
year, from acquisitions to how the company plans to
comply with new accounting pronouncements. To jog the
auditors' memories at year-end, she summarizes those
decisions in memos.
During the audit itself, Tomlinson advises his peers
to hold daily 15- minute status checks with the senior
auditor or managing partner on the account, as well as
weekly or bi-weekly meetings with the broader team to
make sure the schedule is going according to plan.
5. Consider creative ways to split up the work.
Although IPG Photonics CFO Tim Mammen uses Deloitte to
audit his company's consolidated financial statements,
he calls on smaller overseas accounting firms to
handle foreign tax work for IPG's operations in Russia
and Germany. He says the overseas firms are experts in
their local tax laws, and that they cost about 60
percent of what Deloitte would charge.
6. Avoid change. To the extent possible, negotiate for
the same audit team year to year, and aim for auditors
with more experience. "This avoids needless time
bringing new auditors up to speed," says Tomlinson.
7. Baseline your controls. Chris Spivey, vice
president of business process services at MIS Group
and a consultant to companies that are putting in
enterprise-resource -planning systems and new controls,
says that doing a full audit of controls in the first
year but then not re-auditing them in later years
unless a major change is made represents a "huge
cost-saving opportunity. "
Spivey notes that although baselining was allowable
before AS5, the Public Company Accounting Standards
Board's guideline for auditors attesting to their
clients' internal controls. But it's still not
commonly used. CFOs and controllers will likely have
to show their auditors documentation that nothing has
changed and remind them that "you don't have to put
hours against it again this year," he says.
Be aware, though, that some experts consider
baselining controversial. "I'm not sure that testing
less frequently is within the spirit of SOX," says
Hall.
8. Take a hard look at how many legal entities your
company maintains. "Legal structure does add audit
complexity," says Hall. While it's hard to pinpoint
the average marginal cost of each entity, since some
may create cost-savings through tax benefits, Hall
notes that world-class companies in his study had 9.6
legal entities per billion of revenue, while average
companies had 18.9.
9. Do a hard monthly close. In that way, the work of
ending the quarter could merely amount to that of
adding a month.
10. Bring in lunch. That should help control the costs
of those working sessions with auditors—assuming you
skip the steak.
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