proper planning means your audit can provide much more than a client’s insurance.
by alan anderson, cpa
transforming audit for the future
for more than a decade, i’ve been teaching firms around the country how to plan their audits so that relevance, businessmindedness and quality are built in from the beginning, not bolted on at the end. as i mentioned before, many firms rely on standard planning checklists, which result in, at best, a superficial understanding of the client.
more: planning lays the foundation of audit relevance | how do we drive relevance in audit? | lack of relevance drives audit commoditization | four basic understandings every auditor must master | wanted: great audit mentors | closing the audit expectations gap
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here are the essential elements for adding relevance in the planning stage:
talk to your client.
the simplest way to add value and relevance to every audit is to ask your client what matters to them and what would make the audit more valuable. the first step in planning an audit should be a meeting between the audit partner or manager and the client. at this meeting, you discuss the nature of the engagement, the client’s business and industry trends. to make the audit relevant, the insights you gain from this discussion must be woven into the rest of your planning and the entire audit. at this meeting, you should also nail down the delivery dates for the audit and all the other deliverables, including tax returns and any other services.
gain a clear picture of what happened during the year.
what’s different about this year compared to the past? were there changes to risks for the client or for the audit? mergers, new locations or new product lines will have a significant impact on how you plan your audit for the current year.
prepare your pbc (prepared by client) list.
take a thoughtful approach to this list so that it’s a complete list of everything you need from the client to complete the audit. don’t just use the saly (same as last year) approach and copy last year’s list without considering the changes you uncovered in your initial meeting with the client. changes in risk profiles at your client may mean you need new schedules. other new schedules may be needed because of changes in your audit approach. be sure to include an example schedule and template so that your client prepares them in the format you prefer. specify the date that these schedules are due.
match the extent of planning with the level of client complexity and risk.
many firms use a “one size fits all” approach to every audit. adding relevance to your audits means tailoring the planning to your understanding of the client, their industry and the risks inherent in those understandings. low-risk areas may be better explained more efficiently through an audit risk memo than by filling out all the forms and checklists.
on the other hand, larger, more complex audits tend to be slightly underplanned when using standardized audit approaches. these audits generally have numerous connected risks, and most standardized audit approaches don’t have an effective process for linking those risks.
prepare a time schedule and staffing budget that covers the entire audit.
most audit firms schedule staff for fieldwork only, which means that planning and wrap-up have to be completed as time allows. this usually means that planning – if it is done at all – falls into the saly approach. when wrap-up isn’t scheduled, it becomes the “black hole” where audit hours build up. scheduling the entire job from start to finish usually requires a culture shift in the cpa firm, but the payback will be worth the effort. if the entire process is scheduled, the audit team will be set up for success to deliver a high-quality audit, exceed client expectations and dramatically reduce time on the audit.
develop a plan to complete all the work in the field.
workflow at most firms is terrible because they don’t plan how they will complete the work, given their capacity and time constraints. most audit teams go to the field and work on whatever is ready without a plan. when the audit team leaves the field without all the work completed, the remaining work is also frequently the most difficult and risky audit area. sorting out these difficult areas back at the office is much harder when you don’t have staff readily available to answer questions and provide supporting documentation. if you do your planning right, you know what the difficult areas are, so you know what should take priority when you’re in the field.
when you leave field work, the goal is to complete the difficult areas and leave the easier, less risky areas for later. if appropriate, some of these less risky areas can be addressed with analytics instead of detailed testing. now, i’m not advocating not doing the work, but i am suggesting using your professional judgment to determine when analytical procedures will give you materially the same result.