The role of the auditor as a business advisor.

• Author: Esslinger, Tamra

They arrive once per year, brining with them a long list of "must see" financial reports, ledgers, journal entries, invoices, time sheets, work orders, and other corporate documents and records. They set up camp at the cooperative office and work long hours reviewing and analyzing the tall mounds of paper set before them. And finally, several days and seemingly a thousand questions later, they depart, leaving the co-op's accounting staff relieved that they have once again survived the annual field audit.

The cooperative's independent auditor has been perceived for too long and too often as the one who simply checks the accounting staff's numbers. The auditor's true value to a cooperative extends far beyond looking for errors made by staff. And conducting the annual audit is only one service that the CPA can provide for a system. Throughout the years, the CPA's main purpose has been to serve as a business advisor for the cooperative, its directors, management, and staff. Today, his role to a utility as a business advisor is almost essential for survival in an industry characterized by growing complexity and rapid change.

Traditionally, the major role of the CPA was to conduct the annual audit. The audit is required to fulfill the financial and fiduciary responsibility of the directors, to provide assurance as to the accuracy and integrity of the financial statements, to meet mortgage stipulations set out by RUS, CFC, and other lenders, and to satisfy requirements contained in the cooperative's bylaws.

The CPA engaged to perform the audit must have or obtain an overall environmental understanding of the firm being audited. This includes becoming familiar with the type of business, types of products and services, capital structure, related parties, and compensation methods. He should also consider matters affecting the industry in which the entity operates, such as economic conditions, government regulations, and changes in technology. During the audit, such knowledge helps the auditor to:

1. Identify areas that may need special consideration.

2. Assess conditions under which accounting data are produced, processed, reviewed, and accumulated within the organization.

3. Evaluate the reasonableness of estimates, such as valuation of inventories, depreciation, and allowances for doubtful accounts.

4. Evaluate the reasonableness of management representations.

5. Make judgements about the appropriateness of the accounting principles applied and the...