Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

One fresh idea for fresh thinking on your audits: A blank sheet of paper

with 4 comments

Checklists are great tools to help get audits done. They can be superb reminders of something you forgot or hadn’t thought about. They can also be a constraint on actual thinking, leading us into cookie-cutter audits.

My friend Charles Hall, writing at CPA-Scribo, suggests How to Overcome Cookie-Cutter Audits.

The idea is to start with a blank sheet of paper and ask some questions about the audit. Ponder what has changed in the economy, the accounting & audit rules, what problems might be encountered, and what work from the prior audit isn’t needed anymore.

This might get you out of the mental rut of doing things the same as every other audit and avoid the inefficiencies of hanging out with SALY all the time.

Here are his ideas for questions to ponder:

Where’s the risk?

Are there any complex estimates?

How has the client’s accounting system/staff changed?

Are there any new accounting or audit standards relevant to this audit?

Does the client desire any new services (in addition to the audit)?

What problems might delay the completion of the engagement, and what can I do about them?

Has the client incurred any significant new debt?

Has the client constructed any significant capital assets?

Does the client anticipate the discontinuance of significant operations?

What is the most likely area someone would steal? How?

Were there any procedures performed in the prior year that are no longer needed?

I’m going to implement this, starting with two audits that are in planning stage. Here are the first few questions that come to mind which I’ll be adding:

  • How soon will long-term debt be due?
  • What is most important to readers of the financial statements?
  • How important is the functional allocation to readers? (for NPOs)
  • Without looking at the trial balance, where are the numbers likely to be incorrect?

What focused questions could you add for your firm which would stimulate some fresh thinking and get you out of your mental rut?

The post linked above also discusses a bit of the downside from the checklist mentality. Also suggests outside inspections as another way to improve a firm’s audit approach.

Written by Jim Ulvog

April 10, 2015, 8:33 am at 8:33 am

Posted in Audits

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4 Responses

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  1. Jim, I like your additional questions. I wonder what most audit files would look like if no checklists were used?

    Charles B. Hall

    April 10, 2015, 17:47 pm at 5:47 pm

    • I don’t know. Here’s a wild guess though.

      They would probably look like what the risk assessment suite is trying to get us to do. Documentation would show how management sets the tone, what controls management thinks are in place, whether the controls actually exist, where the financials could be wrong, how someone could most easily rip off the company, tests to see if anyone obviously did, blow off the numbers that are obviously right as soon as you look at them in context, give staff an audit program of specific things to check that scare you, and beat up the numbers that could completely change the financials if they are wrong.

      Wonder what would happen if an auditor threw away the prior workpapers and started from scratch every year?

      Jim

      Jim Ulvog

      April 10, 2015, 18:47 pm at 6:47 pm

      • Wow Jim! That would be a completely new game. No prior year work papers. Can you even imagine?

        I have said this very thing for many years. Firms should–from time to time–start from scratch.

        Would it cost more time? Possibly.

        But I think many times starting from scratch would actually reduce time in the long run. I have seen too many audit files that represent the collective thoughts of various auditors over a ten to twenty year period. Each thought (procedure) was probably merited at the time it was created. The problem with new procedures is they are never removed and, consequently, become a part of the collective bulk in the audit file.

        The result is meaningless work and wasted time. Then everyone wonders why the budget was blown.

        Charles B. Hall

        April 14, 2015, 19:36 pm at 7:36 pm

      • One of the advantages of being in a small firm is that I can easily see how every test and inquiry fits into the overall audit.

        When I was at a humongous firm, that wasn’t the case. When you are one member of a large team and have been assigned one specific area that has an 80 hour budget, it is impossible to know how each procedure fits into the whole picture.

        “Why are we doing this?” needs to be in the mind of an auditor at all times.

        The question on the flip side is “what did we miss?” because replicating the prior year workpapers creates a risk of missing some new test that should be done because something changed.

        Thanks for your comment!

        Jim

        Jim Ulvog

        April 15, 2015, 8:27 am at 8:27 am


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