Ghost Stories #113: What every CFO should know about changing auditors

So let's talk about the decision to change auditor because like I said, it's not something that every CFO goes through.

I remember from my corporate finance days, you'd have the same thing on large corporate restructures or M&A.

Not every CFO has dealt with this, and then suddenly they find themselves in charge of a project that is actually almost fundamental to the business, and if you get it wrong, can actually be an existential issue.

And I guess choosing your auditor can be right up there in that regard.

So perhaps you can kick us off by just understanding the decision to actually change auditor, what the drivers of that would be, and then what the typical timing would be of that decision as well.

Absolutely.

It's one of the most common misconceptions that companies only change auditors either when something has gone wrong or when regulation requires them.

So for a long time in South Africa, regulation didn't actually require companies to change auditors, but that changed with the new firm rotation requirements.

So that's been in place for a number of years, so most CFOs at large corporates have probably gone through one change in auditor.

But CFOs also don't always stay in that position.

So like you say, it's very possible that a CFO goes into a position, has been there for a couple of years, and then all of a sudden has to change auditors.

The thing that I see that goes wrong most often is that the CFO or audit committee is not focusing holistically on the process, but rather has an idea in their mind of what the auditor should be looking at right at this moment.

So either because there has been a problem in the company or because there's a preconceived idea that the auditor's only gonna look at the past and issue an audit opinion and then move on and we'll see them next year.

So the timing is very important because you want to have enough time between when you appoint a new auditor and when they need to issue their first report for the auditor really to gain a good understanding of the business.

The audit report and the auditor is only gonna be as good as their understanding of the business and the challenges that the business face.

Anyone can probably sign off a set of financial statements and issue an audit report.

Well, I guess any auditor could do that, but really adding value through that audit report is something that's different.

That's not something that any auditor with any standard experience would be able to provide to a company.