Best Practices for Performing a Quality Audit
Here's how to ensure your audit engagements are efficient (e.g., on budget) and effective (e.g., have no deficiencies).
By Laura Crowley, CPA, MBA | Digital Exclusive - 2019
All CPAs have heard stories about engagements that have gone sideways — the team is not prepared, the client is not ready, issues are uncovered that no one was anticipating, or the quality review process gets bogged down. In the end, the audit is issued but the engagement team is exhausted, the client is dissatisfied, and the realization is, well, not good. Unfortunately, this scenario plays out in busy season after busy season in both large and small CPA firms.
So, what is the solution? Is there a magic formula to prevent problems and have a smooth audit engagement? The good news: it is possible to have an engagement that runs smoothly, stays on budget, and still meets all professional standards. The bad news: it takes time and effort to get that result. Sorry, no magic formula. (But you knew that, right?)
The smoothest, most-efficient, and effective engagements are those that share two common traits: good planning and good communication.
GOOD PLANNING
It is imperative that good planning is performed early enough in the process to enable the engagement team and the client to properly prepare for the audit by:
1. Identifying areas of risk
2. Gaining an understanding of key internal controls and processes
3. Developing audit procedures that link to the identified risks and align with the client’s processes
The timing of audit planning is a matter of professional judgment based on the client’s operating cycle, the need for tests of controls and other relevant factors.
Good planning is performed by an audit team member with the experience to develop a robust risk assessment. Often, a junior staff member will be tasked with “planning,” which really means filling out a bunch of checklists. That approach completely misses the point of planning and can result in a poorly executed audit.
It also involves the client. It is not possible to perform a thorough planning process without discussions with the client about internal controls and processes, their risk awareness, and variances identified in the analytical review. Gaining an understanding of what has changed with the client is a critical step in assessing audit risk. If a physical presence at the client’s location is not practical, arrange a video conference or phone conversation.
Good planning also identifies and addresses issues early in the audit process, letting teams get input from the client, firm quality control reviewers or technical experts, and outside experts. It gives teams a more focused audit approach from the start, resulting in procedures which truly address identified risks and minimize over-auditing.
GOOD COMMUNICATION
A typical financial statement audit involves many people. The engagement team usually includes a partner, manager or supervisor, senior staff members, and staff. The client’s team can include the controller, operations staff, accounts receivable and accounts payable staff, payroll personnel, and others. The engagement also generally involves people outside of the firm or the entity, such as banks, client customers, and attorneys.
All parties combined, there are a lot of people who need to understand their role, allocate resources to complete their assigned tasks, and stay informed about the status. The engagement team is responsible for making sure everyone performs their roles in a timely and accurate manner. Designating one person as the gatekeeper of the information flow, generally the auditor-in-charge, is a best practice. This does not keep others from communicating directly with the client and others as needed, but it establishes the goal of having one person ensuring appropriate and timely communication throughout the audit.
Items requiring timely communication to the audit team include:
Expectations of the engagement team (time budgets and milestone dates)
Status of audit areas, overall engagement, and expected milestone timing
Pending or incomplete information and expected timing
Any issues or areas of concern that have arisen during the audit
Communication with the client should include:
Schedules of information to be provided by the client, along with expected receipt dates. (The auditor-in-charge should update this schedule as information is received to ensure that any issues are addressed quickly and efficiently with the client.)
The schedule of audit team fieldwork dates
Pending or incomplete information and expected timing, including information provided that was incorrect or insufficient
Any issues or areas of concern that have arisen during the audit
Communication with others outside the client (e.g., service providers, vendors, banks) might include confirmation requests and follow up, or additional details or supplemental information, as needed.
While good planning and communication go a long way towards keeping your audit engagements on track, there are additional best practices that can also make a significant impact. One of these is having the entire engagement, including review, completed in the field. Client information should be received upfront and sample selections made ahead of time so that clients are prepared when the audit team arrives for fieldwork. This strategy requires commitment and discipline from the team but improves the quality and efficiency of the audit. Reviewing the engagement in the field also minimizes the need to revisit with the client, which may add time and the impression of poor client service.
With effective planning and constant communication throughout the audit process, as well as completing the engagement in the field, your audit engagements can run smoothly while diligently adhering to professional standards.
Laura Crowley, CPA, MBA, is a manager at Citrin Cooperman and specializes in audit, accounting and advisory services for the financial services, hospitality, employee benefit and manufacturing industries. She is an active member of the NJCPA Accounting & Auditing Standards Interest Group.
This article is reprinted courtesy of the July/August 2018 issue of New Jersey CPA magazine.