When a company puts out a tender for audits and if a new auditor is quoting a significantly low fees what do you do?
#1. Do you ask the proposed auditor the level of fees charged for similar engagements and compare?
#2. If for similar engagements the fees is higher, then why are they quoting low for you. Wouldn’t this result in hidden costs and fees being charged to you later?
#3. If the existing auditor is giving you a significant discount from the previous year’s fees only because you put the audit to tender, has the auditor been overcharging you? Doesn’t this raise credibility concerns.
#4. Are you satisfied that the proposed external auditor has allocated sufficient and experienced resources to address your business risks?
#5. Do you try to understand if management has exerted undue pressure on the level of audit fees such that it creates a risk to audit work being conducted effectively?
#6. Do you assess if the auditor has adequate resources and understanding of your business or have similar experience?
#7. Do you consider their independence? or else they may have to resign half year down the road and you will be compelled to appoint an hurriedly selected auditor at a disadvantage to the company.
#8. Do you consider any hidden agenda of the management due to concerns expressed by the auditor about estimates, assumptions, forecasts and any undue influence exerted by management on the existing auditor? Because the existing auditor may have taken longer hours to solve these issues, whereas the proposed auditor will be unaware of the issues. This will obviously affect audit quality!
#9. Do you consider and discuss pressures faced by management with auditors causing management override of controls affecting qualitative materiality factors, that the management was trying to downplay and want a friendly auditor at a “low” fees?
#10. Do you consider other relationships between the proposed auditor and the board or management that may affect audit quality?
Remember that Old expression which goes like “good things, no cheap, cheap things, no good”