If you’re required to have an audit, or decide it would benefit your organization to have one, the next step is determining who to hire for the work. Which CPA firm is the best fit? What questions should you ask potential auditors to evaluate them?
One factor to consider is that CPAs are licensed on a state-by-state basis and must be licensed in any state in which they perform audits. This is mainly a factor for organizations who are near a state line. If you get a proposal from an auditor across the border, check to make sure they are licensed in your organization’s state.
Experience is one of the most important details to talk about. You should look for an auditor that has experience in the nonprofit industry, and confirm that the staff working on your audit have worked with nonprofit clients in the past. If you’re able to find an auditor with experience in your sector, such as social services, education, or environmental advocacy, this is even better. These firms will have the best understanding of your organization and the accounting and internal control issues to look into, which will lead to the highest quality audit. They’ll also be able to give feedback and advice based on how similar organizations operate. If you have funding from government entities, you’ll want an auditor who understands the requirements and regulations surrounding these revenue sources. Ask for and review references from clients that are similar to you in industry, size, and scope of work performed by the auditor.
Related to experience is professional development. Ask about how the auditing firm stays on top of changes in the accounting realm, such as new pronouncements and regulations, and how they communicate these changes with their clients. What are their continuing education requirements for their staff? How are less experienced audit staff supervised and trained?
Communication will drive how well your relationship with your auditor works. The CPA firm should understand anything that’s unique about your organization and how that might impact your financial statements. You, as the client, should feel comfortable asking questions freely and the auditor should provide information in a way you can digest, without too much technical language. Make sure the auditor explains what they expect of you in advance of and during the audit, and how you should prepare for it. If you have reports, accounting data, and supporting documentation prepared and readily available, you will save time during the audit and help it go smoothly. Understand that the auditor will communicate if problems or questions come up during the audit and, if the auditor recommends changes or adjustments be made in your accounting records, how that will be handled.
The fee the auditor charges shouldn’t be the determining factor in who you hire, but it is significant. It’s best to solicit bids from several auditing firms to get a sense for what a fair price is. You may want to consider contracting for a multi-year engagement. This allows the auditor to recover start-up costs from the first year of your relationship, and if your organization isn’t going through significant changes, you’ll often be able to negotiate a consistent or possibly lower fee in future years.
Many states require CPA firms to submit to periodic peer review. In this process, auditors review the work of other firms, looking at their quality control and adherence to best practices and professional standards. As you’re interviewing potential auditors, you can ask them about their latest peer review results.
It’s important for auditors to be independent of the clients they audit and to avoid conflicts of interest. They must be independent both of your organization’s staff, as well as the board of directors. Perform due diligence when you’re hiring an auditor to make sure there are no relationships with the CPA firm that could raise questions. Because independence can be compromised when a CPA firm performs consulting services for a client they are also auditing, it is a best practice to not hire your auditor for separate, non-audit services. Independence enables the auditor to maintain professional skepticism, which is important to the quality of the audit.
For a deeper dive into the process of finding an auditor, the American Institute of CPAs (AICPA) has this helpful resource, which goes into detail about how to put together a request for proposals (RFP) for auditing firms, what questions to ask of potential auditors, and what information they will need from you to put together a proposal.