Financial statement audits are not just a compliance exercise, but also an opportunity to gain knowledge that can generate positive business results.
In many cases, though, companies are not taking full advantage of the insights that audits provide, a recent survey of 300 executives and 100 audit committee members by Deloitte’s U.S. audit practice revealed. According to the survey report, which was published in March:
- More than three-fourths (79%) of executives and 91% of audit committee members say financial statement audits identify opportunities to improve business performance.
- Almost half (46%) of executives and even more audit committee members (62%) say it’s at least somewhat likely that they would have missed important insights if the audit had not occurred.
- Companies that regularly capitalize on information received from the audit are more likely to have achieved growth over the past three to five years that survey respondents consider “good” or “great.”
“Obviously, quality is the foundation here. We’ve always got to do a good, quality audit to start with,” said Adam Weissenberg, CPA, the national managing audit partner—Clients & Industries for Deloitte & Touche LLP. “If we’re also providing insights and using that as a way to help the company know about some things they didn’t know about, that should be a valuable piece of the audit, and our client would value that.”
Through audits, companies may learn new information about their industry and market, discover shortcomings in processes and policies, and identify inefficiencies and risks. Increased use of data analytics is helping auditors look at large pools of data in a variety of areas to find information that could be helpful to clients.
Whether it’s journal-entry testing, analyzing contents of many leases across a company, or gleaning information from multiple contracts, data analytics is giving auditors the ability to find anomalies and discover inefficiencies that might have remained hidden in the past. These insights can provide important information for audit clients to act on.
Nonetheless, financial statement audits often represent a missed opportunity for companies. More than one out of every three companies (35%) rarely or never uses the information received from their financial statement audits to improve their business, according to the Deloitte survey. About half of executives (45%) and audit committee members (48%) whose companies don’t always use information from their audits do not have processes in place to make use of the insights that can be taken from an audit.
Weissenberg suggested that auditors, management, and audit committees can use the following tactics to make sure the client derives maximum value from the audit:
- Communicate. Management, audit committees, and auditors benefit from communicating frequently to make sure the company is aware of and taking advantage of the insights that auditors discover. By following up and checking in with management and the audit committee, auditors can make sure that their insights have been understood.
- Train auditors on judgment and communication. “We have to continue to work on [developing] the skills in our teams so that they can deliver on this, they have the ability to communicate effectively, they have the ability to take all these analytics and innovation that we’ve done and discern from that what kind of information is important to share with the audit committees,” Weissenberg said.
The survey offers good news for those who continuously strive to make the quality of audits as high as possible, as 83% of executives and 83% of audit committee members rated the reliability of information provided during an audit as good, very good, or excellent.
“There’s an inherent trust that the auditors are doing their job,” Weissenberg said, “and that the auditors are doing a good, quality audit, and that audit committees would look at us as an independent source in doing what we’re supposed to do.”