An auditor who understands your business and industry can help identify risks specific to your business.
Key takeaways
An experienced auditor can be a source of tactical insight and practical business knowledge.
An established audit relationship can provide access to insights and resources as your business needs evolve.
Executive summary
Audits for private companies are often viewed as a compliance requirement, but they can also provide insight into operations, risk and growth opportunities. When approached strategically, the audit process can help business leaders make more informed decisions, improve efficiency and strengthen long-term planning.
This article explores five practical ways private companies can use audits to gain business insight, supported by examples drawn from recent engagements.
How audits can create strategic value for private companies
An audit can serve as much more than simply a check-the-box exercise for private companies. In addition to evaluating financial controls and providing assurance over financial statements, an audit—and, perhaps more importantly, a strategic relationship with an experienced audit firm—can help private company leaders identify ways to increase efficiency, reduce risk and improve overall business operations.
While maintaining our objectivity in accordance with independence guidelines applicable to private companies, RSM can share industry knowledge that private company leaders can act on. Here, we highlight five ways private companies can unlock strategic value from the audit process, including examples of how these themes have come to life in some of RSM’s recent engagements with private companies.
Tap into industry insight to improve decisions
Working with an auditor who truly understands your business and has a deep background in your sector allows you to learn more about industry best practices and leverage them to improve your company. An auditor’s industry know-how can help ensure your audit is tailored to address your business’s specific risks and is, therefore, as effective and efficient as possible. In addition, developing a strategic relationship with the right auditor can guide you through your audit process and throughout your organization's lifecycle.
Example
During a recent RSM audit of a private company in the consumer products industry, we discovered the company was struggling to identify the appropriate steps to mitigate the supply chain disruptions it was experiencing. Because the company was facing so many issues and potential solutions, they weren’t sure where to focus their time and investment dollars.
RSM helped them understand not just which technologies may be beneficial but how other similar organizations were using those technologies. As a result, the company was able to make more informed decisions about the investments needed to help navigate the challenges they were facing.
Understand and manage risks more effectively
Bringing on the right audit firm means bringing on auditors and other professionals with deep knowledge of the complexities of accounting practice and tax matters. Your auditor will gain an understanding of your financial structure and business practices and use their experience to assess and communicate potential hazards you may be facing—and you can head them off.
Example
During the audit of a retail company with significant gift card activity, RSM reviewed the escheatment laws that applied to their issued gift cards to determine the appropriate liability. Based upon prior experiences with retail clients, RSM also inquired about other potential state escheatment issues, which led to the identification of additional potential liabilities that the company was not aware of. This review allowed the company to evaluate their compliance requirements and avoid potential penalties and additional costs.
In addition, the company was in the process of negotiating a transaction, and identifying this issue earlier in the process allowed them to settle the matter during transaction discussions and avoid a potentially larger impact on the valuation of the company.
Identify opportunities for growth and expansion
An experienced auditor will have worked with many companies at various stages of growth in a given business segment. The auditor will have a broad view of the range of strategies deployed across an industry—and how they work. This knowledge can be an invaluable source of tactical insight and practical business knowledge.
Example
A recent RSM audit of a manufacturer of hardware products resulted in a conversation centered around the company's strategy to begin selling directly to consumers. Previously, the company sold their products exclusively through big-box retail stores.
Based on previous experiences advising similar businesses, RSM brought experienced professionals from relevant service areas into the discussion to share industry best practices and help with executing the company’s direct-to-consumer strategy.
Align resources with your business needs
An audit firm with experience and a strong reputation can be an important source of insight and resources as your business needs evolve, which may include expanding with outsourced consultants or managed services. Auditors can connect you with industry specialists, facilitate introductions, help you work through costing and estimates, and help increase your confidence in the process.
Example
During a recent RSM audit of a private company in the life sciences industry, discussions focused on reexamining their resourcing strategy. RSM’s auditors shared insights that helped the company identify the right combination of technology, outsourcing and managed services, and identify trusted providers with industry expertise. The auditors’ knowledge gave the company greater understanding and confidence as they assessed pricing, reviewed contracts and managed the overall process.
Improve operational efficiency across your business
As part of the audit process, the audit firm will systematically review your existing financial processes and accounting practices. Those reviews can help identify areas of strength and weakness and suggest ways to optimize your financial processes.
Example
During another RSM audit, a private company identified where their internal financial controls needed reinforcing, leading them to restructure their finance team to operate more efficiently. The company tightened their accounting procedures, resulting in a more efficient monthly close process.
Use the audit process to create long-term strategic value
By approaching the audit process as an opportunity for improvement and to gain strategic insight, private companies may realize significant value beyond simple compliance. Observations and discussions throughout the audit can positively affect a company’s operational effectiveness, efficiency and potential for long-term success.
When a company’s audit firm understands their industry and provides access to experienced leaders and eminent professionals with relevant knowledge, the company can apply those insights to optimize their business operations and strategic initiatives as their business needs evolve.
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