{"id":121696,"date":"2024-02-26t14:00:42","date_gmt":"2024-02-26t19:00:42","guid":{"rendered":"\/\/www.g005e.com\/?p=121696"},"modified":"2024-08-29t23:53:49","modified_gmt":"2024-08-30t03:53:49","slug":"four-basic-understandings-every-auditor-must-master","status":"publish","type":"post","link":"\/\/www.g005e.com\/2024\/02\/26\/four-basic-understandings-every-auditor-must-master\/","title":{"rendered":"four basic understandings every auditor must master"},"content":{"rendered":"

\"\"<\/p>\n

make your audits more relevant and provide value-added insights and services to your clients.<\/strong><\/p>\n

by alan anderson, cpa
\ntransforming audit for the future<\/a><\/em><\/p>\n

the question professionals should always ask is, “are we leaving the profession better than we found it?” so, let’s ask: are we leaving the audit profession in better shape than it was when we inherited it?<\/p>\n

more: <\/b>put the ethics code to work for your clients and your firm<\/a> | turning audit & accounting into assurance & advisory<\/a> | wanted: great audit mentors<\/a> | is audit in crisis because of definitions?<\/a> | stop sending the wrong message to audit teams<\/a> | closing the audit expectations gap<\/a>
\n\"goprocpa.com\"exclusively for pro members. <\/span>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n

right now, we’re not providing value, but i honestly believe it’s not too late. the future of audit is ours to create or a future that will happen to us, and not necessarily a future we would prefer.<\/p>\n

it will take leadership to change the future of audits. we have to take ownership of the process.<\/p>\n

<\/p>\n

i’m an optimist. i think auditing can be fun. it can be at least challenging and rewarding, but you have to have a passion and an intellectual curiosity to really understand your business. if you have that passion and intellectual curiosity, then when you come up as partners, you’re going to say that group of staff, they get it because we brought them along.<\/p>\n

but, before starting the framework, we need to build a foundation. this foundation is the four basic understandings that every auditor needs to master.<\/p>\n

about six years ago, i worked onsite with a firm, and the managing partner entered the room. i asked him, “what’s your goal for this operational project i’m doing for you?” he said, “al, i just want the silver bullet.”<\/p>\n

i basically closed my laptop and said \u201ci’m out of here. there’s no such thing as a silver bullet. instead of a silver bullet, think in terms of foundational understandings. you’ve got to understand your client. you have got to understand your industry and what you’re dealing with. you need to understand the standards, and you really need to understand how to do the audit.\u201d<\/p>\n

so, the four understandings, again, are:<\/p>\n

    \n
  1. understand your client<\/li>\n
  2. understand your client’s industry<\/li>\n
  3. understand the standards<\/li>\n
  4. understand the audit<\/li>\n<\/ol>\n

    let’s break this down.<\/p>\n

    understanding your client<\/strong><\/p>\n

    now, every standard audit program has a section on understanding the client. and if this is a client you worked with last year, those answers get rolled forward, and usually a staff auditor will get the job of updating that form. so, the staff auditor will sit with the accounting manager and will go over that form and the answers from last year, and then the understanding of the client stops there.<\/p>\n

    at best, that form gives you a superficial understanding of the client. you know what industry they\u2019re in. you know what software they use for their accounting. you know the names and job titles of those who do the accounting.<\/p>\n

    but what\u2019s left off that form is, what are they trying to do? where does that client want to be in five or 10 years? do the people doing the accounting tasks know what they\u2019re doing? do they have streamlined processes or are they using lots of workarounds?<\/p>\n

    what about how their software interacts with their other business modules and the other software they use to run their business? are they using automation or doing lots of manual data entry for reconciliations and calculations? where are the bottlenecks? where are the places where something might go wrong?<\/p>\n

    you can\u2019t really have a quality audit, and your audits won\u2019t be relevant, if you don\u2019t understand the client in these areas.<\/p>\n

    understanding the client is crucial to planning the audit. when you gain a deep understanding of the client, you can ensure that you\u2019re not doing too few procedures and you\u2019re not doing procedures that don\u2019t add anything of value to the audit.<\/p>\n

    understanding the industry<\/strong><\/p>\n

    i\u2019ve seen way too many firms insist they can audit any balance sheet. that may be true, but you risk missing something big that would only be clear if you know the industry well. and if you don\u2019t know the nuances of an industry, it\u2019s nearly impossible to provide relevant insights to your client, ideas that will help that client make progress toward business goals.<\/p>\n

    when you understand the industry, you know what the accounting issues will likely be. you know what\u2019s likely to be an area of risk, a place you\u2019ll need to look at closely. this means you must send your people to industry-specific training, not just the cpe on accounting standards. things change quickly today, so you must ensure you and your team keep your fingers firmly on the pulse of any industries in which you specialize.<\/p>\n

    if you jump into a new industry, you\u2019d better be ready to learn everything you possibly can. send your people to all the training in that industry they can attend. i\u2019ve seen plenty of auditors get sued for bad business decisions. they thought they could take on this unique industry and get it right without wasting time understanding the industry. some are \u201clucky,\u201d and their only punishment for taking on a client in a novel industry is getting reamed on peer review.<\/p>\n

    what are the repercussions if you don\u2019t have expertise in a specific area? as an example, let\u2019s look at employee benefit plan audits. this is an area that many firms view as super easy, something to use as projects to fill in holes in your schedule.<\/p>\n

    in 2014, the u.s. department of labor reviewed employee benefit plan audits for the 2011 plan year. they found that 39 percent had significant audit deficiencies. they also found that as the number of employee benefit plan audits a firm did decreased, the quality also dramatically slipped. for firms that did two or fewer per year, 75 percent of the audits had significant deficiencies.<\/p>\n

    as audit becomes more commoditized, developing an industry specialization is one of the best ways to set your firm apart from the competition. when you understand an industry, you can add insights to the client. you become a best practices connoisseur for that industry and can recommend operational and back-office improvements that can make a big difference to their bottom line. you see where the risks are and how to help your clients avoid them.<\/p>\n

    that industry expertise also means your fees can reflect the additional value you bring to a client\u2019s audit. now, admittedly, those who decide solely on the basis of fees might not be willing to pay extra, but those aren\u2019t the ones you want to work with. the ones you want to work with are the ones who want more than just an audit \u2013 they want assurance and advice.<\/p>\n

    several innovative firms have developed industry expertise to the extent that they have developed benchmarks among their clients for financial metrics. think how valuable it would be for clients to hear how they rank among their peers.<\/p>\n

    a great tool for understanding the client and the industry is the internet. gathering business insight is just one click away. you can quickly gather information about your client, their industry and the general business climate in the area where they operate.<\/p>\n

    this information can be used for two key purposes:<\/p>\n

      \n
    1. to facilitate the identification of risk areas in planning the audit<\/li>\n
    2. to gain business insight about the client and their industry<\/li>\n<\/ol>\n

      both are important to the audit process.the greater the insight about your client\u2019s business, the better the audit approach and the greater the likelihood that you and the client can have a meaningful business discussion.<\/p>\n

      i\u2019m continually surprised at how infrequently audit teams use the internet to gather information about their clients and their clients\u2019 industries. this should be a routine step in planning every audit.<\/p>\n

      the amount of information that a business or organization puts on its website is growing exponentially. but that sheer volume of information can suck up a great deal of time when you are in random search mode. that\u2019s why i recommend that auditors create a targeted and efficient online research plan that includes these items:<\/p>\n