Last week we looked at considerations SOX teams can leverage to improve External Audit reliance. 

This week we’re honing in on what may be the most important consideration in driving reliance: the SOX leader’s relationship with their lead External Audit partner. 

This may sound obvious. But some CAEs and SOX leaders undervalue its importance.

So, let’s spell it out: Why is that relationship so crucial? And what can you do to strengthen it? 

Why It Matters

First Impressions Count — and Stick

When I asked Ryan Godbey, founder of RJG Advisors and a former Big Four National Office partner, for his perspective, he didn’t pull any punches. 

Ryan said, “Honestly,I quickly form views on CAEs and SOX leaders. They’re either in Bucket A or they're in Bucket B. Bucket A means we’re going to have a collaborative working relationship where we’re proactive, sharing the things we see, etcetera. Bucket B, however, means you are noise in my system and I have to work with you.”

Ryan saw these relationships in black and white — he had little time for gray areas. 

And in his experience, most CAEs and SOX leaders stay in the buckets they start in. 

Influence and Alignment Have a Big Impact

Speaking of gray areas: Sure, certain aspects of your External Audit are black and white. But some require subjective judgment from the lead partner. 

The partner’s judgment can influence the amount of management’s work External Audit will rely on, whether management gets the benefit of the doubt, which controls are considered key — and whether your SOX team will need to do a significant amount of extra work.

When I talked with a longtime SOX leader to get his perspective, he immediately focused on influence. 

This leader’s informal relationship and rapport with his lead External Audit partner gave him a better chance of exercising his own influence, thereby getting the partner’s buy-in on gray areas. The increased alignment and trust had a huge impact on his team’s ability to successfully navigate the increased scrutiny over IPEs many SOX teams experienced in FY2023. 

Closed-Door Discussions Are Better-Informed

Some External Audit-related discussions happen behind closed doors, between the External Audit partner, management, and audit committee. For example, that’s where they decide if something is/isn’t a deficiency, and whether it rises to the level of significant deficiency or material weakness. 

When the SOX leader has proactively educated the External Audit partner on the rationale behind scoping, approaches, and management decisions, the partner is more likely to be comfortable with those decisions and bring that perspective into the room. This may increase the odds that key behind-closed-doors decisions will fall in management’s favor. 

Plus, the External Audit partner is often the most trusted advisor to the CFO or Audit Committee Chair on matters pertaining to them. The partner’s prominence in your ecosystem can have a lasting impact not only on your reputation, but also your career path — both in your current organization and beyond. 

3 Strategies for a Stronger External Audit Partner Relationship 

1. Appreciate Their Perspective 

Walk a mile or two in your External Auditor’s shoes. 

Their job requires them to be independent. The questions they ask are generally important. Increased scrutiny from their National Offices and the PCAOB could be driving any requests that seem excessive. They’re often under pressure, overworked, and strapped for resources. They’re also held personally liable for whether your integrated audit passes or fails, even though they probably spend less than 5% of their time on it. 

Be the CAE or SOX leader that can sit down with the External Audit partner and mean it when you say, “I understand where you’re coming from.” 

What does that look like in practice? 

If External Audit team members are having a hard time getting up to speed, be proactive instead of annoyed. Take responsibility for helping to onboard and educate External Audit staff. 

Also, be willing to show some flexibility in response to External Audit’s requests.

If you’re being flexible, you’re more likely to get flexibility in return, potentially enabling you to push back on some of External Audit’s requests. Other times you’ll be positioned to serve as External Audit’s advocate, helping them hold the line if management pushes back. 

2. Proactively Involve Them in Your Work

Offer to include the External Audit team in as much work as possible. 

For example, invite them to walkthroughs, key meetings, and any training or education programs your team provides to control owners. Keep them informed of all key dates, and establish that your door is always open. 

While they may not always be able to take advantage of your invitations, keep them coming. They will make a difference in helping to establish trust, transparency, and a collaborative working relationship. 

3. Keep Them Informed About What’s Happening in the Business 

Establish frequent informal one-on-one communication that goes beyond formal meetings. Consider bi-weekly standing meetings, increasing the frequency during busy times. Ideally you’re on a texting basis that opens the door to ad hoc conversations. After all, nobody wants surprises.

Your core goal here is keeping the External Audit partner informed of any changes in the business as well as its key risks or controls. Former EY Boston Office Managing Partner George Neble (now a board member and advisor to several organizations) always said that one of the most important things a SOX leader can do to help an External Audit partner is to keep them apprised not only of what's going on with internal controls, but what's going on with the business in general. 

Ryan echoed this value prop. “While the External Auditor can talk to literally anybody in the organization, it takes time for word to travel. So they appreciate when SOX teams share what they’re hearing in the organization: Like, ‘Did you know the company is starting to do this? Did you know there’s been a change in personnel in that role?’.” Plus, intelligence sharing ends up going both ways. “Internal Audit can be sensitive about not being included in certain conversations. And External Audit knows some things they don't. They want intelligence as well.”

Overall, these interactions provide the External Audit partner with valuable education and context — while giving you opportunities to demonstrate your expertise and gain alignment. 

For example, how are risk assessments performed? What are your key controls and why did management design them as they did? How do compensating controls help? What drives scoping and how are decisions documented (e.g., management memos)? Have you thought through the second- and third-level questions an External Auditor is likely to ask? What are their potential areas of concern? Have you provided clear justifications for how they’re being handled?

As Ryan explained last week, alignment is the most important filter through which many External Audit partners are likely to view both reliance and relationships. 

Invest in Your SOX Team’s Success

There are other ways to build and strengthen your External Audit partner relationship.

You can stay up to date on regulatory guidance and changes. You can make sure your team maintains high standards for workpaper documentation and overall organization, as we highlighted last week. And don’t forget the value of connecting on a purely human level, by drawing on shared experiences (e.g., working at the same Big Four, alma maters, common interests), remembering any personal details they share, being sensitive to demands on their time, and adapting to their working styles. 

Whatever approach you take, the important thing is investing in the relationship. 

After all, generally speaking, if you have a positive reputation with your External Audit partner, your SOX program is likely to be more effective, efficient, and impactful — including its reliance strategy.

But the inverse is also true: A negative reputation puts your team’s success at risk.

So, are you in Bucket A or Bucket B? Is your relationship with your lead External Audit partner helping or hindering your team? Most importantly, what will you do today to improve that relationship?