Auditors must be forward-looking
I respect the role of external auditors in enhancing audit quality and making the audit relevant. It’s a lot of work for them, and I appreciate what they do for companies. But I do think it would help if they adopted a more forward-looking approach. That implies taking a longer-term perspective, where you also have an interest in the continuity of the company. For example, is the company still going to exist in a couple of years from now? It’s about not just looking back.
Of course, when you are looking forward you have the impairment test, and you look at the business case underpinning valuations. And then you have the issue of business continuity. There’s room to give a bit more perspective on what auditors see in the company.
Communicate informally as well as formally
As an audit committee chair, I’d like to see informal communications with my audit partners, alongside the usual formal channels. In terms of formal communications, what I like best is at the end of the committee meeting, when we have the one-on-ones. That gives us the space to discuss the culture of the company and issues the auditor thinks might come up over time, rather than the more pressing issues that are discussed by the full group.
As a CFO, I learned that sometimes you can “touch the smell” better than others – sense something that others don’t. If you have options to communicate that are informal in character, you can in effect exchange your intuitions. Typically I talk to the auditor once a month on the phone, and we go for dinner on a yearly basis. That provides an opportunity to understand more about their working procedures and their key concerns.