Industry expertise matters more than ever when selecting an external auditor. Ask these questions to focus on the right external auditor selection criteria.
When audit committees choose an external auditor, “industry experience” often is listed as one of the top evaluation criteria, so how can audit committees choose external auditors with knowledge of their specific industry? They should look for external auditor teams that are familiar with and engage regularly with trade associations and organizations, have deep knowledge of appropriate accounting standards, understand the industry’s major challenges and opportunities, and have well-trained and certified team members. Asking these questions about industry expertise can help audit committees select an external auditor.
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What questions should audit committees ask?
To assess an external auditor’s industry expertise, audit committees should ask the following questions:
How can an auditor’s amount of experience in a specific industry be assessed?
An external auditor should have significant experience with companies in the same industry, especially those that are of similar size or revenue. Questions to ask when selecting an audit firm:
- 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?
What should an auditor understand to provide external audit services for this industry?
External auditors should demonstrate nuanced knowledge of key areas of risk or fraud, unique transactions, and other industry-specific details. Questions to ask:
- 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?
How can an auditor’s accounting standards knowledge be determined?
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 those standards. Questions to ask:
- 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?
How can an external auditor demonstrate commitment to and participation in this industry?
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. Questions to ask:
- 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?
What is the external auditor’s 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. Questions to ask:
- 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?
What type of team training and experience should an external auditor have?
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. Questions to ask:
- 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, professionals performing the IT audit should have deep knowledge about IT systems in the industry.
How can different external audit firms be compared to gauge their 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. Questions to ask:
- What are the major challenges and opportunities in the industry today?
- What business process inefficiencies are common for the industry and company size?
This article was originally published on Jan. 19, 2023, and was reviewed and updated.
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Find external auditors with industry expertise
To find the right external auditors with industry experience, audit committees can consult trade associations, outside counsel, industry organizations, and trusted advisers. See some of the industries we work with.