reports on the audit and reports on internal control or other matters as required by
professional standards. This latter approach is sometimes referred to as a “commod-
ity” purchase approach.
However, the challenges facing companies today, particularly international com-
panies, are tremendous. Business environments are changing, in many cases rapidly,
all around the world.
Auditors normally perform business risk assessments, obtain evidence as to the
design and operation of control systems, and evidence with respect to specific trans-
actions for all significant company operations worldwide. Further, auditors normally
bring extensive experience with other companies, both in the same businesses and in
other businesses to their task.
This combination of activities involved in performing an audit of the group finan-
cial statements, together with their extensive expertise from around the world, posi-
tions auditors to be a valued business advisor with respect to accounting matters to
international companies.
While it is less common for companies to focus on and articulate their expecta-
tions in the area of business advice than in the area of the specific audit requirements
discussed above, it is no less critical to a successful and valued relationship between
the company and their auditors. It is also common practice for the auditors to present
the audit committee with a management letter at the conclusion of the audit.
Typical areas where business advice might be sought include:
- Internal controls
- Cash management and treasury matters
- Management reporting and monitoring
- Stock options and other forms of incentive compensation
- Inventory management and accounting
- Business combinations (acquisitions)
The distinction between business advice that can be expected as a normal outgrowth
of the audit process and tax projects that are discussed below is normally the amount
of incremental time required on the part of the audit firm. Advice or recommenda-
tions to considervarious courses of action generally flow from knowledge gained
through the audit and prior experiences. Recommendations to implementspecific
courses of action or changes usually require a specific additional commitment of the
audit firm’s resources and would be considered a separate project.
(iii) Performance Evaluation. During the course of performing an audit, the auditors
will work closely with finance, accounting, and internal audit personnel at all sig-
nificant operations. The extent to which management wishes to receive an evalua-
tion from the auditor regarding the personnel they have worked with varies from
company to company. In some cases, management wishes only to be informed of ex-
treme negative performance, that is, a negative exception basis. In other cases, man-
agement wants more thorough reporting of both positive and negative performance.
Further, expectations may differ from operation to operation within a single com-
pany. In all cases, evaluating and reporting on performance of individuals is a deli-
cate undertaking and must be performed with great care. Again, the company’s ex-
pectations in this area must be clearly addressed. It is now required for the company
31.2 ESTABLISHING EXPECTATIONS 31 • 7