On Edge
One can also be sure that CFOs in the UK, and eventually in other countries, can expect "a more cautious approach [from their auditors] because there is someone always looking over our shoulders," grants KPMG's Bennison. But he adds there's something beyond stricter oversight that's now keeping auditors on the edge of their seats — the economy.
To complement our survey of finance executives, CFO Europe polled some 170 Big Four auditors in Europe, asking them about what could negatively impact CFO-auditor relationships in the months ahead. Far more than regulations or disputes over fee levels, the auditors voiced concern about the knock-on effects of the credit crunch and economic slowdown.
Bennison expects "some quite fraught discussions" as clients assess the damage of the current economic downturn on their businesses. "Our job is to ensure that the board and the CFO understand why we are asking the questions that we are, why we want to see the bank facilities, why in some cases why we want to talk to the bank director," he says.
Jock Lennox, a senior partner at Ernst & Young and head of its CFO programme, agrees that some relationships will feel the strain, requiring more care and attention than during more buoyant economic times. "If you just rely on the formal process when times are tough, you won't have a good outcome... Sometimes it's just a five-minute phone call that does it."
But Lennox adds that lurking in the shadows during all this is the biggest unanswered question that has simmered under the surface of every CFO-auditor relationship over the past years: "What characterises a successful CFO-auditor relationship and how do you balance that with independence? You can be independent and have no relationship but if that were the outcome, we would never be able to do our job."
There's no easy answer, agrees Bednar of Bureau Veritas, but he reckons that's not a problem. After all, he explains, any healthy relationship needs some conflict and "I always say, Keep things under tension and you'll continue to drive improvement."
Janet Kersnar is editor-in-chief of CFO Europe.
Keep a Lid on It
Unlike most other CFOs, Sven Erik Nielsen keeps his cool when the subject of auditors' fees comes up. In fact, he's downright laid back about the fees that other CFOs protest are spiralling out of control. The reason, says the CFO for northern Europe at UK tour operator Thomas Cook, is his company's strong internal audit team. "We have a very comprehensive risk management programme and the auditors are happy with that. If we didn't, they would have asked a lot more questions about the future and the risks we're facing," says the Stockholm-based finance chief. "As long as we have the compliance in-house, we don't need that help from auditors." Indeed, beefing up internal audit staff is just one way that experts say CFOs can keep control of auditor fees.
Recent research of 1,000 companies by The Hackett Group found that the average company spends $584,000 per $1 billion of revenue on audit fees. But companies that the researchers identified as "world class" — that is, companies in the top-quartile of a ranking based on a number of factors — are paying nearly 50% less than the average firm.
As part of CFO Europe's latest auditing analysis, we polled 172 European partners at the Big Four to find out how they think clients can make the auditing process more efficient, and possibly cheaper. Many respondents cited basic project management skills — setting realistic deadlines, preparing documentation around major accounting decisions so that they are "auditable," and running detailed planning sessions that involve both internal audit and external auditors. Another frequently cited area of focus was communication — many auditors said that clients waited too long before getting in touch about a problem or held back important information. (See "Tell It Like It Is" at the end of this article.)
Nielsen agrees that both good communication and project management are key to building a good relationship. As he puts it, that way "we understand their tasks and responsibilities, and they also fully understand ours."
For more on how to control costs, see www.cfo.com/auditing
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