No More Mr. Nice Guy

A CFO survey suggests that recently passed rules for auditors may be a wise idea.

The give-and-take between public companies and their auditors in the reporting of financial results won’t disappear with the passage of a reform package. Accounting involves interpretation, and judgment will continue to play a part in how financial results are presented. “We want to be as transparent as possible, but we also want to help investors see our performance,” says Banks of First Data. The two objectives will always create points of contention with auditors. “We have arguments about a lot of things. Some we win, some we lose,” he says.

More than likely, the arguments will be a lot more vigorous going forward.

Andrew Osterland is a senior editor at CFO.

A Beautiful Friendship

The CFO Survey of Auditor-Client Relationships

For the second in a series of four surveys on corporate finance practices, CFO E-mailed questionnaires to 2,750 senior finance executives about their relations with their external auditors. Fifty-two percent of the 170 respondents carried the title of CFO or finance director, and 51 percent worked for public companies. All but two of the companies had their financial statements audited by certified public accountants.

The survey respondents represent a broad cross-section of industries and company sizes. The most-represented industries were financial services (11 percent) and health care (10 percent). Two-thirds of respondents worked at companies with less than $1 billion in revenue, 15 percent at companies with revenue of $1 billion to $3 billion, and 18 percent at companies with revenue of more than $3 billion.

The next two surveys will focus on investment-banking relationships and corporate-governance issues.

1. Has your auditor challenged any of your accounting practices during the past 12 months?

  • Yes 38%
  • No 62%

2. What part of your financial statements did this involve? (Based on 62 respondents who have been challenged. Total exceeds 100% due to multiple responses.)

  • Reserves 69%
  • Revenue recognition 36%
  • Business combinations 12%
  • Fixed assets 15%
  • Investments 12%
  • Leases 8%
  • Other 8%

3. What was the result? (Based on 62 respondents who have been challenged.)

  • Convinced auditor to go along with practice 25%
  • Convinced auditor results in question were immaterial 32%
  • Changed practice to secure auditor’s approval 43%

4. Have you switched audit firms for any reason in the past three years?

  • Yes 24%
  • No 76%

What was the reason?

A majority of those that switched were former clients of Arthur Andersen LLP. Other common reasons for switching included mergers, price concerns, and mistakes by the former auditor. A few respondents cited the practice of regularly rotating auditors.

5. Have you hired your external auditor to perform internal audit as well?

  • Yes 14%
  • No 86%

6. Have you bought consulting services during the past three years?

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