Companies face several risks when engaging with external auditors, primarily stemming from the potential for auditor independence issues, miscommunication and exposure of sensitive information. Auditor independence is a critical concern because any perceived or actual conflict of interest could compromise the integrity of the audit process, leading to biased reporting or overlooked irregularities. Additionally, miscommunication between the company and auditors can result in misunderstandings regarding financial statements, accounting policies or business operations, which may affect the accuracy and reliability of the audit findings. The process also involves sharing confidential financial and operational details, raising the risk of data breaches or unauthorized disclosure of proprietary information.

To address these risks, companies should establish clear protocols for auditor selection and engagement, ensuring that chosen auditors have no conflicting interests and maintain strict adherence to professional standards. Regular training and awareness programs for both internal staff and auditors can help foster effective communication and clarify expectations on both sides. Companies should also implement robust data protection measures, including secure channels for information exchange and strict access controls, to safeguard sensitive materials shared during the audit process.

Ongoing oversight and periodic reviews of the audit relationship are essential for managing risks over time. Companies should monitor auditor performance and independence, promptly addressing any concerns or emerging conflicts. Establishing transparent reporting lines and encouraging open dialogue between management and auditors ensures that potential issues are identified early and resolved efficiently. By proactively managing these risks, companies can enhance the reliability of their audits while protecting their interests and maintaining compliance with regulatory requirements.

1. Internal Audit Department: Quality Assurance Review External Auditor Interview Questions  

This tool includes questions to consider while conducting interviews with the external auditors to solicit their views and feedback on a company's Internal Audit function. Sample questions include: Describe how often and the circumstances under which you and the internal audit director exchange work schedules and plans. Are changes in work timing, scopes, etc. shared between the external and internal audit groups? To what extent do you rely on or use the work of the Internal Audit department? How does it impact your audit work? To the extent that professional and organizational responsibilities allow, do you conduct your examination in a manner that coordinates your efforts with that of the internal auditor? 

2. Internal Audit External Quality Assessment Process Results Questionnaire  

The internal audit function operates as a key element of the organization’s control system and, as such, steps should be taken to ensure its activities undergo an external quality assessment. In other words, internal auditors should practice what they preach to the company. This tool outlines questions organizations can use to measure the external quality of their internal audit functions. Questions to consider include: Has internal audit planned to have an external quality assessment? Has an external reviewer been selected, scheduled and engaged? Does internal audit have an internal quality program in place that includes ongoing assessment and periodic monitoring? 

3. External Financial Reporting Audit Work Program  

Evaluate the operating effectiveness of the internal controls associated with your organization’s external financial reporting process with this audit program sample. Sample steps include obtaining and reviewing the risk and control documentation created during the Sarbanes–Oxley Section 404 project to gain an understanding of the processes; obtaining and reviewing prior internal audit reports, external auditor management letters and any design issues identified during the Sarbanes–Oxley Section 404 project; ensuring that the financial reporting director/manager checklist has been completed and signed off; and ensuring that the external quarterly disclosure checklist has been completed. 

4. Building Resiliency With External Auditing  

External audits provide an independent evaluation of an organization’s financials, information systems and controls. By having an external auditor check the accuracy of financial statements and accounts, as well as highlight errors in systems and controls, organizations become more resilient and convey transparency and trust to their employees, customers and shareholders. An external audit is performed by auditors outside of the organization. This independent review is typically provided to external parties such as regulators, lenders and investors. Ensure your organization’s financial integrity and system reliability through external audits, ultimately building trust with employees, customers and shareholders. 

5. External Financial Information Key Performance Indicators (KPIs)  

To monitor a business process so that it reaches its key objectives, a company chooses appropriate performance measures. Thus, to build and continually improve an effective business process, a company establishes: key objectives to articulate the performance results the company expects from the business process; outcome measures to determine whether the company has reached the key objectives, and activity measures to monitor the performance of those activities that are instrumental. This tool focuses on the key objectives for providing external financial information, the outcome measures associated with each objective, and the activity measures that drive each outcome measure. 

6. Formulate EH&S Management: External Relationships RCM  

A successful risk management strategy requires a strong internal control environment. The risk control matrix (RCM) format emphasizes that strong and risk-oriented internal control environments are often optimized with automated/manual controls, depending on the situation. An RCM provides an overview of different control objectives that organizations should take into consideration and the corresponding controls to safeguard the company against risks which may arise if not checked timely. Once customized to an organization, this document can help the user in assessing each control. The control assessment can then also be summarized to develop an action plan. This document outlines risks and controls common to the external relationships aspect of the Process 13.3 Formulate Environmental Health & Safety Management process in a risk control matrix (RCM) format. 

7. Provide Financial Information to External Parties: 10-K Preparation RCM  

An RCM provides an overview of different control objectives that organizations should take into consideration and the corresponding controls to safeguard the company against risks, which may arise if not checked timely. Once customized to an organization, this document can help the user in assessing each control. The control assessment can then also be summarized to develop an action plan. This document outlines risks and controls common to 10-K preparation during the 5.2.3 Provide Financial Information to External Parties process in a risk control matrix (RCM) format. 

8. Provide Financial Information to External Parties: Risk Reporting RCM 

A successful risk management strategy requires a strong internal control environment. The risk control matrix (RCM) format emphasizes that strong and risk-oriented internal control environments are often optimized with automated/manual controls, depending on the situation. An RCM provides an overview of different control objectives that organizations should take into consideration and the corresponding controls to safeguard the company against risks which may arise if not checked timely. Once customized to an organization, this document can help the user in assessing each control. The control assessment can then also be summarized to develop an action plan. This document outlines risks and controls common to the risk reporting aspect of the 5.3.2. Provide Financial Information to External Parties process in a risk control matrix (RCM) format. 

9. Risk-Based Auditing Six Elements of Infrastructure  

This sample document includes the six elements of infrastructure for an organization's risk management audits. The six elements of infrastructure is a useful tool for categorizing issues, understanding where problems are occurring within the organization and drawing conclusions to form the basis for recommendations. In Protiviti’s view, the elements of infrastructure should be considered when designing a new process or assessing an existing process. Also, the six elements are common to each process or function. These elements include business policies, business processes, people and organization, management reports, methodologies, and systems and data. These are the capabilities that each process or function should possess, and they provide a comprehensive and consistent framework to communicate the requirements for the appropriate operation of a process or function. 

10. Audit Services Policy  

Understand the external auditors policy and the critical role of the audit committee in ensuring effective internal control processes. This policy applies to the board of directors, the audit committee and all company personnel. It is not intended to restrict the actions of the external auditors in any way. In this sample, all company personnel should provide any information, documents and supporting materials as requested by the external auditors. The audit committee of the board and the board of directors should take all necessary steps to assure themselves that the financial statements of the company are complete and accurate in all material respects and that the internal control processes of the company are effective. 

Browse our External Auditor topic page to see all of th related tools and publications we have published.