I Love A Good Audit (September 2009)

Last month, I wrote about the many questions that are part of our business day. To some extent, an audit is all about asking and answering questions about the financials statements of a business and whether or not they accurately reflect the underlying health of that business. The title of this article might surprise many because it actually stems from a comment someone made to me when I mentioned the audit process. They said “that sounds painful”. I suppose some people view the financial audit process as painful and in fact, I suppose that they can be in some cases. But I think there are three important factors to avoid this situation.

First, it’s attitude. One has to review the audit process as an important feedback loop. It’s an opportunity to have an objective review of the financial practices of the business and find opportunities for improvement. If your view is to defend every journal entry you have made throughout the year so that there are no changes, then the process will indeed be painful. If on the other hand, you view it as an opportunity to understand another point of view and reconcile and agree upon any differences, then it becomes about understanding your business better.

Second, it’s important to accept this feedback and work it through your subsequent year’s financial process. It makes no sense to have the auditors provide adjusting journal entries at the end of each year if you continue the same practices as before only to have the auditors make the same adjustments period after period. I recently came across a company that was making payroll entries incorrectly every two weeks. When I questioned this, the person said that the auditors gave them adjusting entries to fix it. I never understand the thinking behind this process. So I asked, “What if we spend thirty minutes and I show you how to do this correctly?” She said, “that would be great, no one’s ever offered to do that for me before!” To me, this makes far more sense. The person doing the work has learned something new and increased their skill set. Management gets a more accurate view of the financial results sooner (rather than waiting for adjustments) and we’ve taken an unnecessary piece of work away from the outside accountants thereby reducing fees.

Third, it’s having the “right” auditors for your company. The firm should be able to give your company the attention that you need and staff it with people who take the time to understand your business and are comfortable dealing with the level of complexity that your business entails. No one audit firm is right for all companies. The big firms tend to be overkill for the small companies and small firms can’t handle the complexity or staff to the needs of Fortune 500 companies.

If your firm isn’t helping you move forward, I’d recommend asking business associates for referrals and interviewing other firms. Many of the companies with whom I work are small to medium sized businesses with a fair degree of complexity and need a firm that will take the time to understand the business, can handle relatively complex issues, work hard to improve the process and are sensitive to costs. I’d be happy to recommend just such a firm to anyone who might be interested.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.