Audit-related advisory services (P)

The figure-based analysis of economic facts and circumstances – whether comprehensive or strongly focused on selected issues – has always been a core element of audit. The necessity to acquire qualifications required for this purpose through training and experience in audits of financial statements, the core area of audit, has significantly contributed to reshaping the landscape: besides the traditional consulting fields like taxation and accounting, also advice on further economic aspects has long been an important part of the auditor's job. The auditor's services beyond the audit of annual financial statements and special audits required by law (e.g. due to the formation of a joint-stock corporation or as part of structuring measures), therefore also called audit-related advisory services (or audit related services), mainly include:

• business and asset valuation;
• financial due diligence;
• corporate planning and reporting;
• business reorganisation concepts;
• forensic reviews;
• IT audits;
• internal audits and
• services in connection with risk management and internal control system

The above service areas are more specialised than the auditor's main tasks, which has often allowed auditors or auditor teams working in these areas to gain the relevant expertise. Therefore, it is not surprising that audit teams more and more often consist of members having special (additional) qualifications, such as Chartered Financial Analyst (CFA), MBA specialising in M&A, Certified Fraud Examiner (CFE), Certified Internal Auditor (CIA), Certified Valuation Analyst (CVA) and of various expert advisers (e.g. adviser on business reorganisation and insolvency management). The tasks often require cooperation with experts from other disciplines, for example, attorneys, tax advisers, business consultants or other professionals, to which auditors are used anyway and which is governed by guidelines and recommendations laid down in the relevant professional standards. This necessity to acquire extra qualifications has also surely led to the recent growth in the number of companies providing interdisciplinary advisory services. The advisory services such as

• business and asset valuation;
• purchase price allocation (PPA);
• financial due diligence;
• corporate planning and
• business restructuring and reorganisation concepts

form a specific pool of services where forecast is regularly a key element. Depending on the individual case and engagement, forecasts or corporate plans must be prepared or the existing forecasts and plans must be assessed for plausibility and, if necessary, adjusted to meet the plausibility requirements. The challenge is to assess and depict – as accurately as possible – the generally uncertain future business situation and development of a company. In order to do so, it is necessary to first of all understand the company's business model. Subsequently, the figures from previous periods have to be looked at, the market and the competition have to be analysed and the success drivers of the company should be identified. In order to assess the reliability or the sensitivity of the forecasts, essential assumptions maybe modified according to differing expectations. Nowadays, elaborate financial models (financial modelling) – which have become possible not least due to the available software and computer performance – are often used to reliably determine all possible consequences of various planning assumptions. To take account of the importance of cash flow and liquidity figures for the planning process, the financial models now combine the planning modules for the balance sheet, the income statement and the cash flow statement on a standard basis. Whereas financial due diligence audits aim at gathering and summarising reliable and decision-relevant financial information, business or asset valuations, which often rely on a due diligence audit, determine the monetary value of a company or its assets. Depending on the engagement, auditors may either prepare or review reorganisation and restructuring concepts. The aim of such concepts is to show the way to improve operations or the way out of distress and to illustrate it by means of figures. The scope of work and the procedures are to be determined on a case-by-case basis. An overview of the development of these services over the last 15-20 years shows that they have been considerably professionalised in terms of theoretical groundwork, professional (minimum) standards, reporting tools and specialisation of auditors, and that this trend has recently accelerated.