June 7, 2011

Secrets of a Successful Auditor

Working with Lawyers

There is much discussion concerning who should hire the auditor. Should it be the client or the client's lawyer? At stake is the legal argument of confidentiality under attorney-client privilege. Most communication between lawyers and the client may be exempt from legal discovery (disclosure). But there is no such legal protection to hide fraudulent activities or conspirators involved.
We suggest that you ask the client. If necessary, the lawyer could issue a letter authorizing the auditor's work on the client's behalf. As an auditor, you have to be able to do your job without intimidation in order for it to be fair and honest work. This should be spelled out in the audit charter or your engagement letter. A good auditor will leave the legal issues to the lawyers and focus on performing a good audit. Truth often serves as an excellent defense.

Working with Executives

New auditors will notice that pressing attitudes in executive management may be different from what you expect. Executives are usually very concerned about the following basic issues:
Current Sales This is the primary indicator of the health of a business. (In government circles, the same concern would be funding.) In a down economy, executives will be seriously focused on how to restore revenue. In executive circles, we regard our jobs as temporary—the job lasts only as long as we report good financial gains. It takes only a few months or two quarters of poor financials before investors will seek to replace the executives in charge, depending on the organization.
Operating Costs Executives keep a watchful eye on operating expenses, capital purchases, payroll, and anything else that has a major effect on financial reporting.
Opportunity Executives are watchful of the present market. What opportunities lay ahead that we should focus on exploiting? These opportunities will create interest in reorganizing the business, adding or reducing staff, and repurposing product lines or services to gain market share.
Note 
Executive interest in compliance is based on supporting needs in the pre-ceding three concerns: opportunity, sales, and reducing operating costs.
Most executives understand that legal interpretations usually immunize executives for business decisions made within the power of the organization charter, with proper authority and in good faith, using whatever information was available at the time, indicating due care was used. It is highly unusual to find any deep research was used in the initial decisions.

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