Government contractors are no strangers to audits or the host of other compliance requirements associated with this type of business. Generally, contractors are not given many options for government audits beyond making sure all the boxes are checked. Thus, when these audits are performed there is no control over the timing, level of analysis, or feedback beyond whether or not the requirements were satisfied.

Turning financial statement audits into opportunities for government contractors

Beyond the Defense Contract Audit Agency (DCAA), other entities, such as your bank, may require an annual audit of your financial statements. For this purpose, contractors are able to select their preferred firm to conduct the audit. This freedom raises a question for business leaders. They can choose a firm that provides the lowest fee to meet the requirements and check the box. Conversely, they can choose a firm that will meet the requirements while empowering the business to improve and meet its strategic objectives. Selecting a firm that understands your industry and takes the time to understand your business interests can turn an annual requirement into an opportunity to add value to your investment.

Considerations when selecting a professional services firm to conduct an audit

1. How well the firm understands accounting as it relates to your business

An audit is based on historical data, but to provide value, it is critical that the firm you select to conduct the audit is forward-looking. They need to be aware of new accounting requirements and actively work with your internal accounting team to make sure there is an understanding of potential effects on your records as well as any related financial implications for your business. An audit should not be a surprise, but rather, a reflection of the collective efforts of your accounting team and whichever firm you select. If you are consistently blindsided by the results, one or both are likely failing, which can substantially hinder your business’ success.

2. How well the firm understands your industry

Government contractors are subject to a litany of specific requirements — it is important that the firm you select has in-depth industry experience and working knowledge of these requirements. For example, the Federal Acquisition Regulation (FAR) is not something all professional services firms may be familiar with. While an audit is focused on the numbers and not on the compliance requirements of the industry, the firm you select should be aware of the impact of such requirements on your business.

3. How well the firm understands you

It is crucial to establish goals for your company in the next five to 10 years. If your goal is to eventually sell, then your annual audit should be doing more than just meeting requirements.

The objective of an audit is to provide limited assurance, not absolute assurance, that the financial statements are not materially misstated. This determination is dependent on the judgement of the auditor.

The last thing you want to be told when negotiating a loan, adding an outside investor, or finalizing a sale is that your financials are in question. Any of these parties would expect that certain financial items which are important to them would be addressed before a potential transaction. Be certain that the firm you select has a vested interest in ensuring your business’ financials are correct and that they have the experience, reputation, and size to help you reach your goals.

4. Other services the firm provides

Most large firms provide services beyond audit and tax. The firm’s collective expertise should serve as a resource. There may be certain situations that present a conflict and trigger restrictions on certain services a firm can provide while performing your audit. If a conflict prevents the firm from providing a service, they can still help by working with you and your other providers to make sure the proper information is relayed. They may even be able to recommend other professional services firms to fulfill the needs that they cannot.

5. The firm’s involvement in the industry community

In order to understand the industry and identify potential opportunities and risks for your business, you are likely active in various industry organizations and attend industry events. You should expect equal or greater involvement from any of your professional services providers.

6. How involved is the firm’s tax team

One way to maximize your relationship with a professional services firm is to also utilize their tax services. While this may not be a main consideration during your search for audit services, it is certainly important to assess. Pairing these services should allow a firm to use your internal teams’ time and effort more efficiently by limiting the duplication of data and repetitive communication, allowing for faster completion of tasks and realization of value. The firm’s audit team should also be communicating with their tax team to ensure they are addressing any matters that may impact your business’ tax position.

There are many factors to consider when choosing a firm to perform an audit. Before deciding on a service provider, it is important to speak with a few firms using the guide above to carefully assess their level of knowledge and to determine which would best fit your business’ needs. The professionals in Citrin Cooperman’s Government Contracting Industry Practice uniquely understand the needs of this sector and provide clients with the tailored guidance they need to achieve their strategic vision. For more information, reach out to Donnie Meloy at dmeloy@citrincooperman.com or your Citrin Cooperman advisor.