A cost-effective audit partnership

Internal Auditor, June, 1991 by Chad B. Muhlestein, John D. Smith

CITING COST savings and quality work, public accounting firms have historically used client internal audit staffs to assist in completing large audits. DuPont's internal auditing organization has initiated a program called "Audit Assist,"' whereby Price Waterhouse personnel are used to assist DuPont in covering the non-U.S. DuPont audit universe more effectively. Through Audit Assist, DuPont has been able to maintain planned audit coverage and audit quality, lower audit costs and out-of-home-country travel time, and alleviate safety concerns.

Audit Assist uses external auditors in non-U.S. locations to conduct DuPont foreign subsidiary internal audits. Typically, these firms are also engaged by DuPont to perform statutory compliance work in various foreign countries. Thus far, DuPont has used this program in Thailand, Australia, Puerto Rico, The Phillippines and Luxembourg with favorable results. This article focuses on the experiences and results in Thailand and Australia.

BENEFITS

After five pilot tests, the following benefits are apparent: * Airfare and lodging expenses

for the internal audit department

are replaced by the fees

charged by the local public

accounting firms. In these

countries this rate was a

considerable bargain, and the

quality of work done has been

excellent.

The external auditor can more

readily access and audit

remote sites in foreign countries. * DuPont auditing management

has had an opportunity to

evaluate the capabilities of the

local Price Waterhouse offices,

and Price Waterhouse has

heightened its understanding

of DuPont's subsidiaries. * Audits in less stable areas of

the world can be performed by

auditors who are accustomed

to that area, reducing

DuPont's exposure to safety

concerns. * Audit effectiveness is increased

by conducting the

audit in the auditee's native

language, and by using auditors

who are familiar with the

local culture, customs, and

laws. * The external auditor has the

option to schedule the audit

work to utilize his or her staff

during slow periods. in this

way experienced personnel are

available to do the audit work.

The external auditor may be

able to satisfy corporate

financial staternent audit requirements

and the foreign

country's statutory audit

requirements at the time of

the internal audit, increasing

auditing efficiency. * External auditors have been

exposed to different systems of

control. Their experience may

allow them to suggest creative

ways for improvement.

Increased trust and understanding

can develop between

the external and internal audit

staffs.

INITIAL CONCERNS

Audit quality is a major concern at DuPont; and we've found that the major factor affecting any audit's quality is the experience level of the auditing staff. Prior to contracting with the external auditor, we request that only experienced personnel be assigned to the audit, which basically means that we require auditors with a minimum of two to four years of auditing experience. As with any audit, DuPont insures that an internal audit supervisor reviews all work, and assumes responsibility for the audit and its quality.

External auditors work from an overall perspective that focuses primarily on the accuracy of the information in the financial statements. In contrast, internal auditors concentrate on the effectiveness and efficiency of internal controls. Changing the focus of the external auditor was an initial concern of the Audit Assist program.

DuPont has tried to reduce this concern by providing the external auditor with DuPont's own internal audit programs. These programs are only used on foreign audits and have an expanded scope in those areas that are of greatest concern to DuPont. These audit programs are not so general as to be just guidelines, nor are they so detailed as to remove all opportunities for use of an auditor's judgment. They do help to provide the focus that DuPont requires.

Use of external auditors requires DuPont to accept and rely more upon the external auditor's judgement when confronted by a problem. Expanding testing in one area over another, determining the materiality of an issue, and performing operational audits are examples of situations that require a certain level of professional judgment.

DuPont's internal audit management has complete confidence in the work of Price Waterhouse; hence, concerns are infrequent. DuPont also assigns an audit supervisor to every assignment. Although he or she stays at the home office, this manager acts as a liaison between the outside CPA and DuPont auditing management. The manager is always available to consult with the auditors and others at the site.

Another concern has been how the local DuPont office will view external auditors in internal auditing roles. So far this has not been a problem. The local office has always been contacted in advance, so they know that the program is being considered. An explanation of the benefits of the program confirms the value of this program to the local office. After all site concerns have been answered, the local Price Waterhouse office is contacted. Local DuPont employees have not had any problems adjusting to the external auditors in company roles.