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Checking Your CPA Firm's Independence

Independence is the hallmark of the public accounting and auditing profession; a necessary part of the statutory corporate reporting process, and the cornerstone for creating value from an audited financial statement. Simply put, without independence and objectivity, auditing practices quickly slip into a gray ethical area. This area of ethical murkiness is fueled by the profit motive and the desire for billable hours.

Therefore, it is exceedingly important to make sure your CPA firm is operating at a high level of independence. Ensuring independence is not as simple as you might think; in fact, the issue of independence has evolved over the years in response to accounting scandals, and as influenced by legislation such as the Sarbanes-Oxley Act.

The Value-Added CPA

Besides tax returns and audits, many CPA firms offer consulting services or guidance on complex issues, such as DCAA compliance. Since your auditors are already familiar with your company, they can assist in other financial services such as wealth management, or serve to advise you when it comes to the products to fit your government contract cost accounting needs. A good accountant can assist you not only with tax returns, but also with longer-term tax planning, business planning and referrals.

The problem comes when companies blindly trust their CPA's recommendations without first understanding their motivations. How can your company be sure that your CPA firm is providing you with independent, objective advice? After all, the close working relationship between you and your auditors uniquely positions them as trusted advisers as it relates to selecting products and services. Often, this relationship proves to be a double-edged sword.

Proceed With Caution

Since independence is such a complex issue, it is beneficial to have some warning signs when evaluating potential CPA's. The biggest red flag to watch out for is the one trying to steer you towards a particular cost accounting product choice. Too many CPA's are involved with reselling or referring products as add-on's to their traditional accounting services. These firms or individuals may not have your company's best interest at heart when making a recommendation.

Some product affiliations are obvious, but others may require some digging to uncover. Sometimes the firm's product affiliations are disguised, perhaps as a separate entity associated with the firm. While your accountant is in the position to recommend relevant products and services for your business, you must be sure they are not taking advantage of this position. Unfortunately, the trend of advising clients towards products and services they know (or have some stake in), versus stepping back and determining what is best for the client is all too common. Your goal is to hire a firm that will identify the services and products that fit your particular needs, even if those are solutions the firm is not intimately familiar with or have an economic interest in recommending as the "right" fit for your needs.

The Best Choice is What Works for You

So, how do you choose the best CPA firm for your company? The key component in your decision is to choose what is right for your particular needs and your unique business. What works for your competitor may not be the best course of action for you. Your CPA firm should take this approach as well, and you should determine this up front.  A question to ask is "Are you accounting software agnostic, or do you already have a solution in mind for my business?"

This decision is critical because hiring a CPA means trusting that person, or firm, with the financial intricacies of your business. Your decision should reflect your company, meaning that the CPA is well-versed in exactly what you need and not predisposed to offer a cookie cutter solution, or one that pads their fees.

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