The firm was providing client’s management, specifically contractors, with various key financial ratios as part of each audit exit conference. Although the additional analysis was greatly appreciated by their clients it was not always easy to demonstrate how the analysis related back to the audited financial statements. Also industry metrics were limited to those developed internally at the firm and for some niche contractors relevant comparable data was not available.
The firm began providing a Narrative report to the client’s management as part of each exit conference. The report built upon the analysis the firm was already doing and helped to streamline that analysis. Since the firm was already using Sageworks in its audit planning generating the Narrative analysis could be done in a matter of minutes requiring very little additional labor to generate. The analysis helped to directly tie the key ratios to the financial statements and the narrative provided a concise analysis of the relationship of these ratios to the client’s actual financial performance during the period. The use of the charts and graphs in the reports was particularly useful for the clients as it provided a visual representation that in many cases was more meaningful than the raw financial ratio calculations. During our client meeting, the firm provides the color printed reports, and highlights the performance of the Company over the past four or five years along with the Industry. They discuss the benchmark scorecard, and go over the tips for improvements. The tips for improvement are highlighted to management for consideration during the exit conferences. Using the report the firm was able to make specific recommendations for their clients and demonstrate which financial indicators would be impacted by implementing their recommendations.
The client’s management found the reports to greatly enhance their understanding of the audited financial statements that were presented at the exit conference. The firm noted that for one contractor, the accounts receivable and accounts payable days were well above the industry standard. After reviewing the client’s payment and collection policies it was noted that vendors and subcontractors were only paid after payment was received on the contract. The firm was able to use the report to illustrate that the policy was reflected in the contractor’s liquidity ratios and clarified what needed to be done if the client desired to move towards the industry norm. For the firm this resulted in a stronger relationship with their clients and also helped to educate their clients about the value of the audit services they were providing. Also the firm was able to extend this additional service offering to more clients since it was no longer solely dependent on internally developed industry metrics. As the firm has increased fees due to changes in professional standards they have been able to provide the reports to their clients as a value added service.