Audit Client Re-Engagement – Mandatory or Optional?

Written by Associate, Danielle Nye, and featured by For Accountants

Managing client relationships can be as much an art as a science, especially when open and effective communication is so important to an ongoing relationship. Public Practice Accountants and Auditors have been slow to see the value of annual client re-engagement. When business is based on annuity income, it’s easy to assume that the client is happy as long as the scope of work and fee for service remain unchanged. Unfortunately, the absence of annual re-engagement takes away the opportunity to discuss and address client needs and improve the way information is collected and processed.

Audit presents specific challenges, especially in relation to value and price sensitivity. Without a regular and consistent review, including a formal discussion with the client, there’s an increased risk of scope creep or the embedding of inherent inefficiencies in service delivery. At the very least, opportunity to add value is lost without a regular discussion of client needs.

When was the last time you reviewed ASA 210 Agreeing the Terms of Audit Engagements?

Paragraph 13 of ASA 210 talks about recurring audits:

On recurring audits, the auditor shall assess whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing term of the audit engagement.

Clearly, there is no specific reference to an annual review, however in practice this is an essential part of every statutory audit. Even when there’s a pre-existing agreement to maintain a fee for service over a number of years, regular internal review is essential to ensure that the sharing of information is strong and consistent.

How do you manage ongoing audit client relationships? Do you follow these steps?

1. Establish an annual review process within the existing engagement document.

It’s important to re-engage with clients as soon as possible after the last audit was completed to ensure that a review is undertaken of any issues which arose during the previous audit and take into account any lessons learnt.

Section A31 of ASA 210 lists in detail circumstances when review of the audit engagement is required. Use this as an internal checklist:

1. Any indication that the entity misunderstands the objective and scope of the audit?
2. Any revised or special terms of the audit engagement?
3. A recent change of senior management?
4. A significant change in ownership?
5. A significant change in nature or size of the entity’s business?
6. A change in legal or regulatory requirements?
7. A change in the financial reporting framework adopted in the preparation of the financial report?
8. A change in other reporting requirements?

2. Take the opportunity to ask the client about the quality of service and standard of communication.

Key areas of client communication that can affect service delivery include:

1. The extent to which the auditing firm understands the client’s business and their current issues, challenges and risks;
2. The way in which information is collected and processed by the auditing firm;
3. Feedback to the client in relation to any specifics issues that arise during the audit process; and
4. General responsiveness to requests for information from both client and auditing firm.

The annual review process is a good opportunity to build on any expectations with the client in terms of providing all of the information required for the firm to perform the audit in the following year.

3. Conduct a business health check to identify and understand any issues that may affect business performance over the next 12 months.

It’s easy to treat an audit as a compliance job. Information is collected, work is completed and the client is billed the agreed fee for service.  By being more proactive in identifying future issues, you create the opportunity to add value in the audit process and also through the provision of specialised services, including:

1. Corporate governance;
2. Financial reporting;
3. Fraud examination and control;
4. Information systems reviews;
5. IT systems assessments;
6. Management accounting; and
7. Due diligence services.

The team at National Audits Group conducts an internal review of every audit client at the time the annual audit is completed. This is also an opportunity to ask the client for their feedback on the quality and value of service. Rather than being seen as a difficult and time-consuming process, the audit review and re-engagement process should be an opportunity to build a strong, long term relationship with clients. It’s worth the time and effort!

Do you let your audit clients know you will be re-engaging them on an annual basis? Do you explain clearly what is involved in this process? What could be improved in the way you engage your clients?