I love auditors (and maybe you should too)
September 11, 2019
by James Hansen, School of Accounting & Taxation chair and associate professor of accounting
Okay, I teach Financial Statement Auditing to undergraduate and graduate students and maybe you are thinking: “that is why this guy says he loves auditors”. Alternatively, you may be thinking: “I don’t like auditors because they walk onto a battlefield and stab the wounded”. When the auditors come to your workplace, most employees do not classify this as a high-five event.
Let me explain why I like auditors. I have learned over the years that I like order in my life. I like order in society. As an investor, I like order in our United States capital markets.
One thing that I have found is that for order to remain in any setting, there needs to be enforcement of the rules and regulations that are created to keep order. This is where auditors come into play. An auditor compares a company’s financial statements with an established criteria to make sure that the company is following that criteria. The criteria we follow in the US for financial statements is Generally Accepted Accounting Principles or GAAP.
Auditors come in once a year to perform an audit to make sure a company’s management has created financial statements that are following GAAP. Publicly traded companies are required to have an audit on an annual basis. Public companies cannot be listed on an exchange unless their auditors let the world know that the company’s financials are free of material misstatements. Auditors help capital to flow. This flow of capital makes all of our lives better and provides the order that I enjoy and that I hope you enjoy also.
THREE THINGS YOU CAN DO TO MAKE THE AUDIT EXPERIENCE MORE ENJOYABLE
1) Remember that the auditors are there to help you meet your financial reporting goals.
Auditors want you to have financial statements that are free of misstatements. Auditors want to suggest internal controls that will help you make sure that your financials are ready to go before the auditors arrive. Let the auditors help you improve.
2) Consult with your auditors as early in the year as you can about financial reporting concerns, so any issues can be resolved well ahead of the audit.
When the auditors arrive, they are usually in the middle of their ‘busy season’. This is a high stress time for both you and the auditors. Auditors love to address problems early in the year, so they do not have to address the problems when the stress is high. Stress can help you and the auditor perform better, but when the stress gets unmanageable, this can lead to dysfunctional behavior. Let the auditor know of your concerns as soon as you can to avoid this.
3) Invite the auditors to meet with all of the stakeholders that will be affected by the audit prior to their arrival to align expectations and schedules.
If everyone knows when the auditors will arrive, how long they will be at your site, and what information the auditors may be asking for, this can alleviate the natural concerns that come from auditors reviewing your work.
I know there have been auditors that have been negligent in their duties. This can lead to poor outcomes for all involved. As long as auditors are fulfilling their professional responsibility, this is better for you and for me. So, the next time the auditors show up to perform your financial statement audit, give them a high five and let them know you are thankful for the order they provide to our capital markets. You will probably surprise them, but don’t be surprised if you get more doughnuts than normal some Friday during the time they are there to perform the audit.
 The Financial Accounting Standards Board (FASB) sets GAAP in the US.
ABOUT THE AUTHOR
James Hansen joined the Weber State University faculty in fall 2013 and currently serves as an associate professor and the chair of the School of Accounting & Taxation in the Goddard School of Business & Economics. He started his service as department chair in 2019 after spending the 2018-2019 academic year as the Academic Fellow in the Office of the Chief Accountant at the Securities and Exchange Commission
He received his BS and MAcc degrees in accounting from Brigham Young University and his PhD in accounting from the University of Georgia Terry College of Business. He teaches Financial Statement Analysis, along with Introductory and Advanced Auditing in the GSBE Undergraduate Accounting and Master of Accounting programs. Hansen’s research focuses on audit quality and detection of earnings management. His research has been published in Auditing: A Journal of Practice and Theory, Current Issues in Auditing, Journal of Accounting Literature, Journal of Accounting and Public Policy, Journal of Portfolio Management, and The CPA Journal.