Portfolio company management must aggressively enhance enterprise value over a relatively short time. In this environment, any additional management project is often an unwanted burden.
However, an external audit is a non-negotiable requirement and an important component of lender relationships. PE-backed CFOs who invest in audit management will minimize disruption and maximize value.
A PE-backed finance chief is wise to observe several best practices as they lead their company through an external audit.
Vet the Auditors
Sponsors may recommend a specific audit firm to their portfolio companies.
If so, CFOs should be wary of pushing for an alternative firm, lest they commit a costly error.
Whether searching for a firm or stepping into an existing partnership, a CFO should diligence the auditor before the process begins in full. Key items to consider:
- Does the firm welcome investigation into their processes and quality? Are they willing to provide access to their Code of Conduct?
- Does the firm have a proven track record of success with similar companies?
- Can the firm clearly articulate how they will internally supervise the audit and ensure accountability and efficiency?
- What specific audit team will be assigned to your company? It is best to declare the need for a strong, vetted team well in advance.
Small and mid-sized businesses are often assigned painfully inexperienced auditors, increasing risk of frustration. Audit firms field teams of varying quality, so a CFO may gain access to a superior team simply by proactively addressing the issue.
If so, this upfront improvement in aud...