Buying Audit Services – Advice from an Expert

Yesterday we featured the survey looking at the audit market carried out by Proxima, procurement outsourcing service providers. From their results, it is clear that more firms are going out to the market and looking to compete for that business, and more are actually changing suppliers. Clearly, service providers such as Proxima and others, with their considerable and specific experience in this field, offer one option for firms looking to address this. But in many cases internal procurement functions and professionals will be getting involved in the category for the first time.

In their press release, Richard James, Category Director for Professional Services at Proxima said this.

“Selecting the right auditor for the business is critical, but it is not easy. Buying statutory audit is not like buying stationery or cleaning services – you can’t assess the quality of the output and reverse engineer the price! The business must understand exactly what it wants from its audit and that’s unlikely to be the lowest cost. Relationship management, cultural alignment and sector specialism will be much higher up the wish list”.

James goes on to suggest that firms should look hard at the “tier 2” audit firms beyond the “big four” – that also seems sensible, and those firms are making some inroads although the big 4 still dominate amongst the largest firms.

But we had a particular question for James, based on the difficulty we know some procurement functions and people have in simply establishing their roil in sensitive professional services categories like Audit. Just how can procurement people get involved with this category in their organisations if they haven't been up to now? Here is his answer.

 

“Procurement should demonstrate an understanding of the business drivers for the selection of an audit firm and the value that auditors can generate in the new, competitive environment.

In simplistic terms our research showed that companies’ audit costs reduced on average by 10% as a result of going out to bid - but the story behind this is that this is not generally driven by negotiation on rates.

The keys to a successful modern audit solution are the ability to demonstrate an understanding of the client’s marketplace and business climate and the consequent challenge that the audit firm is able to bring, both to the company’s management team in managing their internal processes effectively, but also in the approach to the audit itself: its scope, the way it is conducted (can elements be offshored or automated, for example) and the additional, often informal advice that arises from a strong audit relationship.

If procurement teams can engage with their CFO and the Chair of the Audit Committee by speaking to the concepts of value drivers and can themselves challenge these senior execs to think about how they will assess firms’ proposals, then they have a fighting chance of being considered seriously. If they focus purely on pricing or compliance points they’ll generally be dead ducks or, at best, administrative process managers.”

 

Again, good advice from James. Don’t focus overly on price, look at value. Understand your own business and how the audit world works; and of course engage with the key internal stakeholders. Good advice for any category really, but perhaps even more important if it is a new area for procurement involvement. Thanks to James for giving us those pearls of wisdom and good luck if you are venturing into these unchartered waters in your organisation!

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