Can This Relationship Be Saved?

Auditors and CFOs aren't the friends they once were, but they are working out their differences.

At a recent gathering of finance executives from around the country, grumbling about reticent auditors was universal. One CFO complained that she was paying more for her audit but getting much less for her money, because her auditors no longer provided accounting advice, which she considered the most valuable component of audits past.

“They’ll give you information, but they won’t give you a recommendation,” sums up Peter Kruse, CFO of Nissan Forklift. (Ironically, information delivery is among the key complaints that auditors levy against clients; see “Auditor Angst.”)

PG&E is one of many companies that have engaged a third-party consulting firm to help address complicated accounting questions. “By the time we go to our auditors with an accounting issue, we’ve pretty much got it wrapped up,” says Johns. “In the past there was a lot more willingness on the part of our auditors to engage and talk about the accounting. Now they’ll listen, but it’s by no means similar to the conversations we had before [Sarbox].”

Seventy percent of CFOs say they meet with their auditors ahead of time to determine the areas up for review, a critical exercise in which CFOs point out the greatest risks and share the work internal audit has already done. But these conversations are more guarded than they once were.

“The auditors leave a little bit in their back pocket,” says Tom Ackerman, CFO at Charles River Laboratories, a provider of research models and laboratory services to biotech and pharmaceutical firms. “In earlier days they would lay out everything they were going to look at, but these days they don’t share their entire audit program with you. There’s a little bit left unsaid.”

Too Expensive

Although practically everyone complains about the dearth of auditor advice, that ranks as the number-three gripe of finance chiefs. What’s number one? Fees.

Audits in the post-Sarbox era are too expensive, according to nearly half of those who say they are dissatisfied. Fees were widely expected to fall after the first year of Sarbox implementation, but in fact they have continued to climb at most companies. Eighty-two percent of finance executives surveyed reported an increase in fees from 2007 to 2008, although the majority of those say the increase was slight — from 1 to 10 percent. Only 6 percent of companies saw fees fall. Seventy-three percent expect fees to rise again next year.

Given the increased scope and complexity of audits, rising costs seem inevitable, says CDW’s Klein. “With the passage of Sarbanes-Oxley, there was more work, and if there’s more work there’s going to be more cost,” she says. “The fees have come down from the early years, but they’re never going to be at the levels they were pre-Sarbox.”

CFOs bemoan the complexity of new accounting regulations and say they expect complicated rules to drive audit costs even higher in the years to come. “If you look at something like derivatives accounting, you have companies like Fannie Mae and the major banks, which have an awful lot of smart people who go through the issues with their auditors, and they can’t seem to get it right,” says McDonald of Johnson Controls. “The complexity of these standards is worrying, and documenting and implementing them tend to drive up costs.”


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