One important service, which Small and Medium Enterprises (SMEs) have failed to utilise effectively to improve their bottom lines and increase business value to scale, is audit service. This is echoed by Alan W. Anderson the president of ACCOUNT-ability Plus in his article ‘The Goal of the Audit’ where he sighted a survey conducted by KPMG of 200 small to medium-sized companies, which found that 56 per cent of respondents saw the normal audit as a routine chore that varied little from year to year and, more than 60 per cent of the companies said their auditor did not raise any issues or ideas that were used in their business to enhance their processes or decisions.
SMEs make up close to 90 per cent of businesses anywhere in the world economies and are responsible for providing employment to close to 90 per cent of the people actively employed. That said, SMEs in Uganda especially continue to struggle with governance, management, manufacturing/production and growth challenges with dire consequences.
An Audit engagement process can result into an array of opportunities to improve processes in management, corporate governance and strategy in areas such as product innovation, customer satisfaction and care, innovative management methods to sustain revenue growths through customer acquisition and retention strategies, general administrations, manufacturing/production, asset management plus financing and investment opportunities.
Expand audit need
To realise this value, seen as solutions to the fore mentioned bottom lines, entities especially SMEs, will have to expand their audit needs beyond the traditional audit which focuses on assurance, fraud detection and compliance assessments to include, aspects of advisory audit such as, reviews of governance and various business processes and also benchmark these against best industry practices with a view to add value.
Value in Audit
Traditional audit is not helping SMEs because the primary concern for a small business is not assurance or fraud. These operate less complex systems, that make it easy to detect fraud and the compliancy demands for SMEs are extremely low. This, therefore means, an SME’s primary interest in audit, should be to seek for opportunities to scale their businesses or enterprises by undertaking an Audit that offers more than what traditional audit offers.
Since 2011, the IFAC Global SMP Survey has helped to raise awareness about the challenges and opportunities faced by SMEs globally. Its 2016 survey results revealed an increased demand for non-assurance/related services by SMEs. Audit firms, have in response to these demands, upgraded their audit service lines so that, they can offer more value.
Whereas these innovations have been made by audit professionals, SMEs still request for the traditional audit service as seen in numerous tender requests for audit service.
SMEs need skills
To undertake the kind of audit being proposed in this article, SMEs need to acquire special skills set to ensure an equivocal input. These skill shall enable them perform prior self-assessments before engaging an auditor. This would include, identifying and risk profiling crucial business processes and suggest ways of how they want the issues to be tackled in form of a preferred audit methodology, present them in a communication to potential auditors in terms of reference, select the best match Auditor and proactively follow through the engagement to implementation of recommendations.
Such an audit is crucial, for an enterprise to not only survive, but also avoid stagnation.
Matching the auditor with the identified audit needs is very critical; this is because, auditors vary in terms of experience and interest. Auditors have often branded themselves, by choosing to specialize in particular industries or business process and, are therefore more cut out to deliver the greatest value to SMEs if well matched with the enterprise’s Audit needs. An SME who has put in skillful effort to determine its audit needs, has greater chance to select an auditor who will raise issues and ideas that can be used in their business to enhance their processes or decisions.
Auditors are trained professionals who do not impose their will on clients. They therefore, can only go as afar into the client’s affairs as the client can allow them. SMEs should seek training that focuses on improving their technical input-capability on key areas of an audit process namely; the pre-engagement, engagement and the post audit which require its keen participation to ensure its maximum productive input.
The write is a trainer and a senior Audit consultant.