How to choose an external auditor with industry expertise

Industry-specific evaluation criteria

To assess an external auditor’s industry experience, audit committees should evaluate the following qualities:

1. Amount of experience. An external auditor should have significant experience with companies in the same industry, especially those that are of similar size or revenue.

• How many peers has the auditor worked with?
• How many audits has the firm performed for similar companies in the same industry?
• How many years of experience does the auditor have in the industry?

1. Depth of specialization. External auditors should demonstrate nuanced knowledge of key areas of risk or fraud, unique transactions, and other industry-specific details.

• What areas of risk or fraud are common in this industry, and how does the auditor plan to approach them?
• What transactions are typical for this industry and company size?

1. Accounting standards knowledge. Accounting standards affect industries in different ways. An external auditor needs to understand which accounting standards are relevant to the industry and how to perform a risk assessment in response to them.

• Which accounting standards affect this industry most, and what impact do they have?
• How will the external auditor approach risk assessment for these accounting standards, as the impact of the standards might be different within the specific industry?

1. Commitment and participation. Ideally, an external auditor can show long-standing dedication to an industry and might interact regularly with industry professionals and stay updated on the latest challenges and solutions.

• Are members of the audit services team involved with any trade associations or regional industry organizations?
• Do audit team members regularly attend and participate in industry events, especially as speakers or sponsors?

1. Industry reputation. An external auditor’s overall reputation is always a top consideration, but what about its industry-specific reputation? Audit committees can explore this factor by reaching out to trade associations, asking peers, or contacting references provided by the external auditor.

• Can the relevant trade association or peers share insights into the external auditor’s work within the industry?
• Can the external auditor provide multiple references from companies that are of a similar size and in the same industry?

1. Team training and experience. Individual external audit services team members should have relevant industry training and certifications. Audit committees also should know how each member’s responsibilities (financial, IT, tax) support industry needs.

• Have individuals from the firm attended trainings and received industry-relevant certifications?
• What are the responsibilities of each member of the audit services team?
• Does the external audit firm have specialists who understand industry-specific needs? For example, experts performing the IT audit should have deep knowledge about IT systems in the industry.

1. Industry knowledge. Based on experience working with peers in the industry, an external auditor might be able to share observations on matters affecting the industry when asked about these topics.

• What are the major challenges and opportunities in the industry today?
• What business process inefficiencies are common for the industry and company size?

Where to find external auditors with industry expertise

To find the right external auditors with industry experience, audit committees can consult these industry resources for contacts and recommendations:

• Trade associations
• Outside counsel
• Industry organizations
• Trusted advisers
• Peers