Evaluating your auditor is important for a non-profit organization (NPO). It is the Board of Director’s responsibility to assess the performance of the auditor at the conclusion of an audit engagement. This assessment should focus on the following key areas:
- The qualifications of the auditor and how they conducted the audit;
- The auditor’s independence and objectivity;
- The quality of the auditor’s communication with management, the audit committee and the Board; and
- The auditor’s relationship with management and the Board.
In larger organizations, this responsibility is often delegated to the audit committee, which will likely have members with the skill set and knowledge to effectively conduct this assessment. There are tools available, such as questionnaires, to assist the committee in their analysis.
Smaller organizations face a different challenge in doing an auditor evaluation. The reasons for this are twofold:
- The organization may not have an audit committee with knowledgeable and experienced members to conduct the assessment, if they have an audit committee at all; and/or
- The scope of the auditor’s role in a smaller organization is often more than just conducting an audit, and may include significant additional services including accounting, tax advice, and more.
It is still important for smaller organizations to assess their auditor regardless of the Board’s potential lack of experience. In fact, the relationship between the auditor and the Board is, if anything, of greater importance in a small organization, making this assessment paramount to its efficient operation.
In smaller organizations, management and the Board often rely on the auditor to provide advice and assistance in order to fulfill their compliance requirements. It is the auditor’s responsibility to ensure this reliance does not adversely affect the auditor’s independence and objectivity.
In dealing with management, the auditor must remain professionally skeptical at all times, and be able to discuss any issues the auditor may have concerning management’s performance openly and candidly with the Board, while maintaining a healthy professional relationship with management.
Understandably, boards of smaller organizations have a tendency to focus on fees as the main criteria when assessing the auditor’s performance. While this is an important consideration, it is short-sighted because the added-value services the auditor provides may be critical to assisting management in the performance of their duties, and could, in fact, save the organization significant future costs by ensuring proper books and records are maintained and the organization remains compliant in all respects.
Regardless of the size of your organization, evaluating your auditor is an important part of the engagement process. Consider discussing your overall expectations with the auditor to ensure you are on the same page from the start.
