you may be prioritizing the wrong factors. that could cost you clients. worse, it could make you and your audits irrelevant.
by alan anderson, cpa
transforming audit for the future
if we can’t demonstrate to our clients that our work is relevant, then the audit will go the way of the dinosaur. relevance underpins the other attributes.
relevance is not a one-time event. it’s a continuous process, woven through everything your firm does. you build it one step at a time. this should be done with every audit, so this becomes core to the fabric of the firm’s culture.
more: lack of relevance drives audit commoditization | five crucial attributes for successful audit leadership | traditional audits don’t deserve premium billing | four basic understandings every auditor must master | put the ethics code to work for your clients and your firm | turning audit & accounting into assurance & advisory | wanted: great audit mentors | is audit in crisis because of definitions? | stop sending the wrong message to audit teams | closing the audit expectations gap
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without understanding what’s relevant to the client, we can’t practice business-mindedness and help improve our client’s business. with an understanding of the relevance and how the standards impact the client’s business and industry, the quality of audits goes up. relevance helps you evaluate innovative audit methodologies because you understand how they can be used to obtain the required audit evidence. finally, relevance empowers your staff to do their best work because audit isn’t reduced to filling out endless checklists.
but what does relevance mean?
in our accounting classes, we learned that relevance refers to information that is timely, useful, has predictive value and will make a difference to a decision-maker. let’s consider how that definition applies to audits today.
clients, stakeholders, regulators and auditors all have different perceptions of the audit’s goal. companies get audits because they are required to. the users of those audited financial statements – the ones who force companies to get audits – say the audit doesn’t provide useful information. regulators often find audited financials so deficient that they perform their own audits and examinations. auditors themselves can’t effectively explain what an audit is all about.
to be relevant, audit needs to zero in on the intersection of what you think is important, what your clients are interested in and what is useful information to stakeholders. it’s no surprise that your clients don’t care about the same things you do, and neither do the stakeholders or the regulators.
what do most auditors think is important in an audit? frankly, what most auditors care about is getting the work done timely so they can move on to the next engagement. the staff wants to get the work through partner review. the partners want to get through peer review. hopefully, they also want to be sure that the correct opinion is issued, that the numbers are materially correct and that they’ve correctly identified the risks. sadly, only a few auditors get into audit because they’re interested in how businesses operate. that was the reason i got into auditing.
firms today focus on one thing and one thing only: time. we reward meeting deadlines and staying within our time budget. we penalize taking the time to think about what we are doing and how to make it relevant to the client. focusing only on the time metric helps undermine the relevance of the audit process. your team is only focused on getting the work done because they have another one down the road.
we penalize taking extra time to talk to people because it interferes with getting the perfect realization rate. how many firms send out a regular report to their staff that shows their billable hours and productivity rate and compares that to their year-to-date budgeted amount? does that inspire your team members to take the extra time to really understand the client and their industry? i bet not.
what are the clients interested in? they don’t want an audit, but they do want to keep the external users who requested the audit happy. however, that’s not all that they want. according to a 2018 survey by deloitte, the top two things that c-level executives want from an audit are identifying potential risks and potential improvements for how the company operates. it sounds like they want more than a signed audit report to hand off to their banker.
what do the stakeholders want? they want assurance that this organization will remain a going concern and can continue paying its bills on time. they want reliable numbers to plug into their modeling system to determine whether this is a good investment.
how about the regulators? they want assurance that the organization complies with the relevant laws and regulations.
what is the intersection? it’s not materiality, the correct opinion or the accounting standards. as an independent auditor, you shouldn’t be worried about keeping the stakeholders happy. the intersection is that clients want your help in identifying risks and ideas on how to improve their business.
that’s where relevance comes in.