Part 1: Why Public Companies Need Second Professional Advisor in New Normal


Note: This blog post is part one of a two-part series. Read the second part here

Continued uncertainty is increasing pressure on public companies to find new solutions for managing complex compliance requirements and business challenges – and they will have to look beyond their auditor for assistance.

Now, more than ever, public companies are dealing with a complex business and regulatory environment. Organizations large and small are trying hard to stabilize from the long-lasting COVID-19 pandemic. Leaders are thinking of innovative ways of leveraging new business opportunities, experimenting with new and agile approaches, disrupting traditional process design, and managing risks intelligently to secure sustainable competitive advantage.

Public companies, regardless of their revenues or capitalization, have the onerous responsibilities of making transparent disclosures and reporting complete and accurate periodic financial statements to their stakeholders. Additionally, they must comply with a plethora of industry-specific regulations and compliance requirements. Managing these complex requirements on a continuous basis requires significant expertise and resources, which is not always available in-house – and may not be able to be provided by the company’s auditor, due to independence rules.

Executive management and audit committees who are charged with oversight often struggle with the many nuances of the Securities Exchange Act, other enacted or proposed compliance requirements and accounting standards. Non-compliance poses serious reputational risk and could result in financial penalties. As such, public companies should consider engaging a second professional services resource for assistance with these matters and more.

Independence considerations prohibit auditors from providing certain services

Public company audit committees must ensure that the services rendered by their audit firm do not impair the firm’s independence in fact or appearance. To maintain independence, the SEC’s rules specifically prohibit an auditor of a public company from providing the following nine non-audit services to the company and its affiliates:

  1. Bookkeeping
  2. Financial information systems design and implementation
  3. Appraisal or valuation services, fairness opinions, or contribution-in-kind reports
  4. Actuarial services
  5. Internal audit outsourcing services
  6. Management functions or human resources
  7. Broker-dealer, investment adviser, or investment banking services
  8. Legal services
  9. Expert services unrelated to the audit

For help in these areas, public companies need a trusted and experienced professional resource – independent of their auditor – with deep industry knowledge and domain expertise. This advisor must understand their complex risk and compliance requirements and be able to provide practical solutions that not only enhance business and enterprise value but also can withstand regulatory scrutiny, when necessary.

Where a second professional services resource can add value

Public companies may look to professional services firms for value-adding services and solutions on related to:

  • Business process optimization and redesign
  • Internal audit and Sarbanes-Oxley (SOX)-related compliance
  • Risk assessment and validation
  • Accounting and financial reporting advisory
  • Fair value estimates
  • Mergers and acquisitions due diligence and transaction advisory
  • Tax planning
  • Cybersecurity risk mitigation, preparedness and resiliency
  • Intelligent automation
  • Remote work strategies
  • Environmental, social and governance (ESG) considerations

Business is increasingly transaction-based, and experts are becoming specialists. Public companies should take a modular approach in selecting niche and expert advisors to help solve their challenges.

For example, for assistance with internal audit and SOX-related compliance, public companies should look for service providers with extensive risk assessment and internal controls experience in various industries, and a track record for preparing management assessments and evaluations efficiently and effectively. For ESG considerations, public companies need advisors who can help formulate an appropriate sustainability intelligence strategy and assist in tactical execution of the industry and company-specific measures to drive the sustainability metrics.

In part two of this series, we’ll share more information about how public companies can leverage a second professional resource to maximize value in each of the disciplines listed above.

Chandrasekar Venkataraman, CITP, CFF, ABV, CIA, CISA, CFE, CIRA, CM&AA, is a Risk Advisory Services Director of Corporate Governance at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.

Leave a Reply

Your email address will not be published. Required fields are marked *

We respect your personal information. Please review our Privacy Policy for more details.