Academic journal article Journal of Accountancy

How to Rate External Auditors

Academic journal article Journal of Accountancy

How to Rate External Auditors

Article excerpt

Audit committees of public companies are under increasing regulatory pressure to ensure external auditors are doing a quality job. Considering these factors should help them fulfill their oversight role.

Evaluate the technical skill and experience of the audit team's primary members. Specific considerations include whether (1) the external auditor has demonstrated a sound understanding of the company's business and the economic environment's impact on the company and sought feedback on the quality of the services provided; (2) the lead auditor discussed with the audit committee the audit plan and how it addressed areas of accounting and audit risk specific to the company; (3) the lead auditor provided information about the technical skills, experience, and professional objectivity of other auditor teams who also performed services and about their oversight; and (4) the auditor identified and responded to any auditing and accounting issues that arose from changes in the company or changes in applicable accounting and auditing requirements.

Check the external auditor's sector experience to assess the value of the service. Specific considerations include whether the cost of the external audit was reasonable and sufficient for the company's size, complexity, and risks and whether any external auditor communicated an inspection's results, including findings regarding companies in similar industries with similar accounting or audit issues, and how to respond to the comments from regulators.

Consider resources made available to the external auditor. Specific considerations include whether the audit team had sufficient access to specialized expertise during the audit and whether additional and appropriate resources were made available to complete the audit work in a timely manner.

Examine independence, objectivity, and professional skepticism. …

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