Are Audits a Commodity?

When Audits Becomes More Than a Compliance Exercise

Harry Catrakilis returns from his summer away to growth amongst CKH’s audit division. He broaches the question ‘are audits a commodity?’ and where this shift is coming from. He explores some feedback he’s heard from clients on why they are thinking of switching to CKH and what this means for the broader audit industry.

“Hi there, I have been away all summer!

The retirement activities that I have been focusing on seem to have gained some good momentum, which, of course, will require even more dedication. That said, what makes retirement easier is seeing how my protégés continue to exceed all expectations.

I have watched CKH be very successful in gaining audit clients over the last 15 months. In the past, I always felt that corporate managers would default to a big name. The logic was often, “Let’s pay top dollar for the nameplate. The audit process itself adds little value. It is mainly a statutory compliance requirement and a box that needs to be checked.”

There was also a very human element to it: choosing the biggest name felt like the safest decision. If something went wrong, nobody could question why management had hired one of the largest firms in the world.

And the big firms knew that. They understood the value of their name and brand, and they were comfortable charging a premium for it.

So, why are clients increasingly moving towards the smaller or mid-sized firms like ours?I think it comes down to that realization: an audit is not what the big firms and regulators have turned it into – a commodity. Instead, it is supposed to be a highly customized, specialized service.

The best analogy I can use is the difference between a custom home builder and a large, cookie-cutter mass producer. The mass producer may have a massive name and tremendous brand recognition, supported by huge marketing budgets, sponsorships, major sporting events, and all the rest of it. But that does not automatically mean the product being delivered is better.

In fact, it can be particularly frustrating when the large, standardized provider is also charging more than the firm providing a genuinely customized service.

The big firms have spent years saying their size, systems, and superior processes are what clients need. But process alone is not enough. You only need to look at the number of high-profile audits across the profession that have missed the mark to understand that size does not eliminate risk and a checklist does not replace judgment.

It is like a mass producer of furniture saying his furniture must automatically be better than a handmade, customized piece simply because his factory is bigger. When I talk to clients interested in CKH Group and ask why they would consider changing auditors, I tend to hear the same three things:

1. There is no master.
Clients often say their audit team is constantly changing and that every year they must teach the auditor about their business all over again. The argument seems to be that process can make up for having a true subject matter expert. I do not believe it can.

2. The client feels like they are expected to fit around the audit firm, instead of the audit firm serving the client.
There can be an attitude in the profession that says, “We the auditors, we are very important. We are very busy. You are not our only client.” Of course, every good firm is busy. CKH is busy too. But being busy is not an excuse for making a client feel unimportant.

3. Clients can see the difference between a customized approach and a checklist-driven approach.
When they interact with a practitioner who truly understands their organization, their risks, and their industry, they can tell. Typically, it is the engagement partner who develops the audit approach, considers the risks that need to be addressed, and determines how the work should be performed to ensure a high-quality product is delivered. There is a major difference between personalized professional judgment and bureaucratic completion of a long list of required procedures.

To me, it is refreshing to see the market beginning to recognize that difference. My suggestion to anyone out there is simple: an audit should be an integral part of an organization’s best-in-class practices, but only if you partner with a real master tradesman.” -Harry Catrakilis

The above article only intends to provide general information and reflection. It is not designed to provide specific advice or recommendations for any individual. It does not give personalized tax, financial, or other business and professional advice. Before taking any form of action, you should consult a financial professional who understands your particular situation. CKH Group will not be held liable for any harm/errors/claims arising from the blog. Whilst every effort has been taken to ensure the accuracy of the contents, we will not be held accountable for any changes that are beyond our control.