There is no standard way to conduct an audit. Even the same partner within a firm approaches different companies differently. This makes it critical to understand the approach the auditor is going to take on your audit before preparing for the audit itself.
Meeting the audit team and discussing risk areas helps focus the preparation on areas that the auditors will be most concerned with. For example, if revenue recognition is a risk area for the company, we will spend extra time making sure that there is adequate documentation of the revenue-related processes and transactions so the auditors don’t get slowed down waiting for information from the company.
The other benefit of this process is that it helps us prepare the Technical Research and Support for any unusual activity the auditors will be looking at. The most important aspect of doing this up front is that we can develop the company’s position on the matter, and then test the transactions to make sure they are consistent with the position.
Waiting for the auditors to identify an inconsistency is a waste of everyone’s time, and it ends up costing the company much more to fix it. But even worse, depending on the severity, the audit firm may consider this a material weakness in controls over financial reporting. This leads to disclosure in the company’s SEC filings, putting downward pressure on share prices.