to also evaluate the auditor in accordance with the Sarbanes-Oxley Act previously
discussed above.
(iv) Taxes. As part of the audit of the group financial statements, the auditors are re-
quired to determine whether or not the impact of taxes, both income and other taxes,
has been presented fairly in those financial statements. Beyond this requirement, and
depending upon the company’s internal expertise in the area of taxes as well as other
factors, the company may wish to involve the external audit firm in a variety of other
tax planning and tax compliance activities of the company. These activities may vary
from country to country and may also cover employees’ personal taxes, particularly
in the case of employees on international assignments.
While many companies receive significant tax services from their auditors, that is
not always the case. If the engagement of auditors is to include such tax services on
a recurring basis, the company’s expectations should be clearly delineated.
(b) Communications. As indicated in the introduction to this chapter, communica-
tions are the most critical success factor for international companies in selecting and
maintaining a relationship with their auditors. The sections, which follow, discuss
four aspects of communications, namely participants in the communications process,
content, form, and frequency.
(i) Participants in the Communications Process. Communications between an inter-
national company and their auditors is a “many to many” process. From the com-
pany’s perspective, the board of directors, audit committee, chief executive officers,
and/or managing directors, financial management, including finance and accounting
officers, and legal counsel are all-important in the communications process. Com-
munications are with individuals in the above positions or with those responsibilities
at both the parent company and subsidiary or significant operating unit level.
From the auditor’s perspective, the key individual in the communications process
is normally the overall engagement partner at the parent company level. However,
the tax and other partners who may be serving the company at the parent company
level as well as the partners serving subsidiary companies or major operating units
are also important to the process. In fact, a major challenge faced by the overall en-
gagement partner on a day-to-day basis is to keep abreast of important communica-
tions between the auditors and the company on a worldwide basis.
Effective communications between auditors in various locations serving an interna-
tional company involve a balancing act in meeting the apparently divergent needs of a
multinational holding company and its subsidiaries. This balancing act may involve ei-
ther professional issues or client relations matters. International companies must make
their expectations in this regard very clear. The ultimate responsibility of the auditor
normally must be to the parent or holding company. The needs of the parent company
and the auditors’ responsibility to the parent company must be paramount.
(ii) Content. The content or nature of communications between international com-
panies and their auditors varies from statutorily required opinions and formal recom-
mendations on matters of internal control to a variety of matters that assist in main-
taining an effective working relationship. This latter area includes:
- Engagement letters
- Plans for the audit
31 • 8 MANAGING THE AUDIT RELATIONSHIP IN AN INTERNATIONAL CONTEXT