How to Identify and Manage Audit Stakeholders

Identifying your audit stakeholders can assist in identifying audit risks

This is a guest post by Harry Hall. He is a Project Management Professional (PMP) and a Risk Management Professional (PMI-RMP). He blogs at ProjectRiskCoach. You can also follow Harry on Twitter.

Some auditors perform the same procedures year after year. These individuals know the drill. Their thought is: been there; done that.

Imagine a partner or an in-charge (i.e., project manager) with this attitude. He does little analysis and makes some costly stakeholder mistakes. As the audit team starts the audit, they encounter surprises:

  • Changes in the client stakeholders – accounting personnel and management
  • Changes in accounting systems and reporting
  • Changes in business processes
  • Changes in third-party vendors
  • Changes in the client’s external stakeholders
Identifying audit stakeholders

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Furthermore, imagine the team returning to your office after the initial work is done. The team has every intention of continuing the audit; however, some members are being pulled for urgent work on a different audit.

These changes create audit risks–both the risk that the team will issue an unmodified opinion when it’s not merited and the risk that engagement profit will diminish. Given these unanticipated factors, the audit will likely take longer and cost more than planned. And here’s another potential wrinkle: Powerful, influential stakeholders may insist on new deliverables late in the project.

So how can you mitigate these risks early in your audit?

Perform a stakeholder analysis.

“Prior Proper Planning Prevents Poor Performance.” – Brian Tracy

Who Has a Stake in the Game?

The Project Management Body of Knowledge defines a stakeholder as, “individuals, groups, or organizations who may affect, be affected by, or perceive themselves to be affected by a decision, activity, or outcome of a project.” Anyone impacted in a positive or negative way is a stakeholder.

Typical audit stakeholders include:

  • CFO or comptroller
  • CEO
  • Accounts payable clerk
  • Payroll clerk
  • Receivables clerk
  • Stockholders
  • Lenders
  • Audit engagement partner
  • Audit team members
  • Related party entities
  • Grantor agencies or contributors
  • Benefit plan administrators

The Four Killer Ingredients for Stakeholder Analysis

As you conduct your preliminary interviews and surveys, ask each person to help you identify individuals, groups, and organizations that may be impacted by the audit. Ask stakeholders you’ve worked with in previous years to let you know about changes in staff or other stakeholders.

Identify the stakeholders at different levels of the client’s organization. Analyze the following:

  1. Who will be impacted by the audit?
  2. What are their interests, including needs and expectations?
  3. What are their concerns, including limiting factors and constraints?
  4. What is their level of power and influence?

If there are few changes from the prior audit, the stakeholder analysis will take very little time. If there are significant changes, the analysis will provide information for better estimating the effort, duration, and budget for the audit.

The Most Powerful Time to Perform Stakeholder Analysis

Project managers should perform the initial stakeholder analysis early in the project. Project managers should also review and update the stakeholder analysis periodically.

In the Closing Process, review the Stakeholder Analysis. What did we miss? How might the stakeholders change for next year?

Are You Engaged?

Now that we have identified the stakeholders, we need to determine how we will engage the stakeholders throughout the project life cycle. This action plan should clearly communicate who you will engage, how you will engage them, and the purpose of the interactions. Particular attention should be given to the stakeholders who have high authority/power and high influence.

Reach Out to Your Stakeholders

Save yourself heartburn.

Invest a little time early in the audit and periodically thereafter to identify your stakeholders. Determine ahead of time how you will engage the high power/high influence stakeholders. These simple steps will improve the probability of meeting your client’s needs and completing the engagement on time and under budget.

Question: What are the most costly mistakes auditors make with stakeholders?

For information about project management and managing risks, check out my blog at ProjectRiskCoach.com.

Twins

I am the twin brother of Charles Hall, CPA-Scribo’s blogger. Here we are at University of Georgia football game.

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4 thoughts on “How to Identify and Manage Audit Stakeholders

  1. I think the most costly part of audits is arriving in the field and finding out the client has not completed the client assistance list, then having to return to the CPA firm’s office.

    The “pick it up and put it down” thing kills budgets. Sometimes this is the auditor’s fault (too many jobs scheduled at the same time). Sometimes it’ s the client’s fault (they aren’t prepared). Either way, as your post states, we need to early identify potential bottlenecks.

  2. On taking over a new audit, it is obvious that the prior auditor missed this or that because trying to meet unrealistic, irresponsible time budget and/or subjected to client pressure. Years ago, my firm submitted a proposal for an audit to a California Unified School District (the “District”) located in the central California area. One of my associates received a call from the District’s Superintendent who said that he liked our qualifications and wanted to award the audit contract to us; however, we were too expense. Our associate started explaining that besides the time we had out of town traveling expenses. The Superintendent responded, “You do not need to come here, our prior auditors did not come. We will send you the data you need so you can prepare the financial statements”
    In another case, many years ago, when I was the audit manager of a national CPA firm, I performed a joint audit with another CPA who previously was a partner of a large CPA firm, which no longer existed. The New Jersey office of the Company I worked forgot this company as a new client and they had a big operation going on here, in Southern California. Because the client liked and requested to perform jointly with the previous CPA, our managing Partner agreed to it. The Company I worked for was signing on the report so I had the semi-final responsibility. It was a big garment operation. The other CPA was handling the inventory and gave it to me as completed, which already included the inventory count observation, cut-off, pricing test, etc. However, it did not perform a tie-up, the reconciliation in garment units. When I discussed with him, he initially gave me a strong resistance, it got to the point that I said, I am not signing on it, and you had better call our Managing Partner. Then he accepted to do it, he said to the client “Armando has a special project, additional work for you guys, do not blame me”

    • Planning is the key. Knowing who we are going to interact with and why is critical. Too many auditors grab the prior year file and proceed without truly thinking about and planning for all that needs to occur. The problems always seem to float to the surface in the last week of the audit–and worse yet, they sometimes surface months after the release of the report.