process of establishing expectations and assessing the qualifications of the firms nor-
mally involves considerable discussions over several weeks’ time. The number of in-
dividuals involved in receiving services in an international company as well as the
number of partners responsible for the delivery of services for the audit firm can be
very large. Further, the individuals involved on both sides will, over time, change. In
such circumstances, it is necessary to clarify through a written document the under-
standings that have been reached and thereby avoid misunderstandings of the in-
tended arrangements at a later date.
(b) Content. All significant objective aspects of the company’s expectations dis-
cussed in the first section of this chapter should be included in the terms of reference.
Such items would include:
- Auditing standards to be complied with during the engagement
- All audit and related reports to be received
- Reliance on an anticipated coordination with internal audit and the accounting
functions - Tax projects, if applicable
- Timing of work and related reporting
The commitment of company resources for clerical and administrative support
should also be clearly spelled out. Such assistance can be critical in meeting report-
ing deadlines and providing service in the most efficient manner possible.
Fee arrangements including the timing and amounts of billings, to whom bills
should be submitted, any special approval requirements and payment terms should
be included. While such matters may seem mundane, they can be a disruption to an
otherwise strong working relationship between an international company and its
auditors.
A final matter to consider for inclusion in the terms of reference is the company’s
plan for reviewing the performance of the audit firm. A brief description of the tim-
ing and focal points of the performance review will be useful to both parties. With re-
spect to timing, a review should be performed after the first year. Taking the time to
provide such feedback will be very beneficial to the audit firm and allow them to
make what will inevitably be necessary corrections in their approach to serving the
company. After the initial year, reviews every two or three years would be optimal.
31.5 CONCLUSION. Changing audit firms is time consuming and inherently inef-
ficient with respect to at least the first (if not the second and third) annual audit after
the change. International companies have more at risk in this regard because of the
worldwide nature and extent of their needs.
As stated in this chapter, the keys to maintaining a successful relationship between
an international company and its auditors, and thus avoiding a change, are:
- Clearly identified expectations
- Careful assessment of qualifications
- Thorough evaluation of performance
- Communications, communications, communications!
31.5 CONCLUSION 31 • 17