Does the external auditor meet the expectations of the owners?

The external auditors have been over the years appointed to carry out the following;

  • To determine whether the accounting records are accurate and can be relied upon in the preparation of the financial statements.
  • Whether the financial statements are prepared in accordance with the provisions of accounting standards so that there is consistency from one year to another and from one organisation to another.
  • Whether the financial statements show a true and fair view of the financial position, results of operations, and cash flows  of the organization for a given period.

The above scope of work has been accepted over years for purposes of the auditors issuing an opinion on financial statements but the scope may not necessarily address the expectations of the owners of the business.   The expectations of the owners are many and can only be addressed by the auditor   if the team conducting the audit has the necessary expertise and competence.   The above scope looks simple but may create a lot of challenges for the external auditors as different stakeholders have different expectations of them. The owners as business people tend to have unique expectations which can only be addressed if the competent resources are deployed by the auditor. The big audit firms can afford the luxury of sector, process, technology, risk and business experts but may be not all the time. Does the external audit in its current format help the business owners in walking confidently towards their mission? The answer may be yes and no depending on how the following challenges are dealt with by the auditors;

Mission and strategy

The owners have a mission to succeed in a given business and have developed a strategy including a business plan to achieve their mission.  Does the audit team have the expertise and capability   to appreciate the mission of the owners, the strategy and the road map they have developed to   implement the strategy?  Do the auditors seriously engage the owners or their agents on the mission, strategy and roadmap and are they able to assess whether the roadmap is being implemented consistently and effectively? How much time do the auditors spend talking to the board of directors or even senior management? Is the time spent with the board members or senior management their most comfortable time? Does the auditor appreciate attitude of management towards challenges, failure and success? The attitude of the owners, board and management towards the above issues may impact on the integrity of the records and the resulting financial statements. Do the auditors realize that management is in place to support the owners in achieving their mission and they are not principals in their own right? Are the management team and the owners driving in the same directions?  What actions do the auditors take when the two parties are driving in different directions?

Goals, objectives and activities

For the owners to implement their mission they have to develop goals in areas of priority, objectives for each area of priority and   activities to achieve the objectives. Are the priorities areas correct in light of the business the owner is in?  Are the goals and objectives SSMART (stretch, specific, measurable, accurate and time-bound)? Is it possible for the auditors to do a good job if they only looked at the financial statements without clearly understanding the mission, goals, objectives and activities behind the financial statements being audited?

Management Improvement Letters

Most management improvement letters dwell a lot on issues of risk management in the areas of finance and accounting. Is it because this is the area where auditors have expertise? Could it be that the areas of strategy and alignment of performance with strategy, product development, business development strategies, attitude of management towards risk, success and failure, succession plans and policy gaps among others are no go areas for the auditors because they lack expertise? Is it possible to confirm viability of the business in the long run without considering the above issues?

Risk management

I have often found difficulty in appreciating challenges in certain business sectors especially in this highly innovative and creative sectors that are using the latest Information Technology platforms. I personally overcome my ignorance through seeking audiences with subject matter experts who educate me on issues which are not clear in my mind.  Can all the auditors afford expert advice within the fees they earn?  Are new auditors taken through a formal induction program by management for them to appreciate the mission, strategy, the business plan, business risks, the products and services of their new client?.  We can only assume an auditor is an expert but certainly not in all areas. I have hardly heard of an auditor declining an appointment because of lack of expertise. Could it be possible that most audits are delayed because auditors are busy learning of the unfamiliar environment?


There are many laws and regulations which a business entity has to comply with.  Going concern issues could come into play if a business entity does not comply with the regulatory framework.  Do all audit teams have expertise in compliance matters or do they rely on a check-list completed by a junior auditor in the team?  Do the auditors engage in meaningful discussions with the compliance officers or they just send their tradition letters to the lawyers who in themselves are not necessarily experts in compliance?

Board agenda

It is important for the auditors to confirm who determines the working arrangement (agenda) between the board and management.  The independence of the board depends on the capacity of the board to determine the working arrangement with management. It is necessary to confirm whether the board has power to fix the time for meetings, timing of board papers, format and length of board papers, time duration for board meeting and to postpone board meetings which are not correctly convened? Non Independent boards on the other hand follow the working arrangement as established by management.

Alignment of business process

Any business has three important components namely people, technology and process which have to be aligned for the organisation to meet its goals. The key role is played by the people and processes.  The owner or the board wants assurance that all the business processes are aligned. Do the auditors clearly understand how the processes are aligned?


The relationship between the auditor and the business owners or the board   has a lot of challenges which have to be managed. The owners and their agents are looking for an auditor who will partner with them and give them necessary advice while they are implementing strategy. On the other hand the owners are looking for an independent auditor who will provide them with independent opinion on the operations of the business including the financial results. They need assurance that business plan is on the right course. The challenge for the auditor is how to create a partnership with the client and at the same time remain independent.


John Muhaise Bikalemesa

Director: Big Drum Advisory Services Limited