Using Project Management in Audits: The How and the Why

It's not enough to be effective, we must be efficient

On the first day of your audit, you’re confident you’ll deliver your report on time. You have visions of a happy client and happy firm partners. But, somewhere along the way, things break down. Your best auditor transfers to another job. You learn–as the audit progresses–that your junior staff member lacks sufficient training. Your client is not providing information as requested. And, additionally, your audit team has unearthed a fraud.

How can you lessen or respond to these problems? Project management. In this post, I’ll tell you what it is and how you can start using project management in audits, including software selection and practical implementation steps.

Using Project Management in Audits

 

Using Project Management in Audits

Auditors need to be effective (by complying with professional standards), but we also need to be efficient (if we want to make money). And project management creates efficiency.

Managing resources, identifying impediments to audit processes, responding to scope creep–these are just a few of the issues that we encounter. And these challenges can increase engagement time and decrease profits. Worse yet, that promise regarding timely completion can go unmet. 

Either we will manage our audits, or they will manage us. 

So, what are the keys to using project management in audits?

  • Audit team members
  • Project management software
  • Create a project management plan
  • Be aware
  • Be vigilant

Audit Team Members

The number one ingredient to a successful audit is your team members. Even more important is the person managing the engagement.

Have you noticed that some people–regardless of the obstacles–just get things done? If possible, get and keep people like this on your audit teams. You may be thinking–at this moment–“but our firm has a difficult time hiring and retaining great employees.” Then revisit your hiring and retention practices.

Having great team members is essential, but they need to work together. So, how do we get them to play their roles at the right time? A project management plan defined in project management software.

Project Management Software

There are plenty of useful project management software packages. They include:

Pricing varies. Some are free while others are expensive. So, you’ll need to do your research to determine which solution is best for you. Personally, I use Basecamp at $50 per month. If you want to start with a free application, try Trello or Asana. Another option is Smartsheet (an Excel-spreadsheet-based product) at $25 per month. Larger firms may desire to take a look at XCMWorkflow.

Regardless, get your feet wet. If you’ve never used a project management package, it’s hard to understand the beauty of doing so.

Basecamp

Here’s how I got my own feet wet.

Four years ago I started using Basecamp. And why did I pick this software? Mainly, because of ease of use. I can create cloud-based to-do lists for my audit teams and my clients. Also, Basecamp allows me to hide my audit team’s to-do list from my client. So, my audit team can see the client’s to-do list, but the client can’t see my audit team’s list.

Additionally, I can assign each to-do item to an audit team member or client personnel. And even better, I can assign a due date. When the to-do item is due, the designated person receives a reminder email. (As you can see, I no longer need to send a client assistance checklist to my clients. Those tasks that once resided in a Word doc now live in Basecamp.)

Basecamp provides iPad and iPhone apps so that I can see my projects on those devices. Additionally, I access my projects on my Windows desktop using the Internet. So, Basecamp is accessible from anywhere.

Here’s a video overview of Basecamp:

Once you’ve picked your project management software, you need to create a project management plan.

Create a Project Management Plan

What is a project management plan? It’s deciding what, when, and who. These three factors are dependent upon the deliverables, and in our case, the deliverable is the audit report.

Who

First, let’s start with who will perform the actions.

A partner, an in-charge, and one or two staff members often comprise an audit team. Regardless of the team size, your first decision is “who is going to work on the engagement?” and as we said above, this is the most crucial element in getting your audit done. But notice that an audit involves not only your team members but client personnel. You can’t audit unless they provide information, answer questions, and allow you to inspect documents. You might also work with specialists or attorneys

Add all persons to your project management software, including audit team members, client staff, and others. (In Basecamp, I add persons to the project by sending an invitation email from within the software.) But how do we know who we will work with? That depends on what we plan to do.

What

Second, determine what needs to be done. But how do we do this? The development of our audit plan.

The audit plan is our response to risk assessment which is performed early in the engagement. Once we perform walkthroughs, make inquiries, inspect documents, and make observations, we become aware of risks. And in response, we create an audit plan to address those risks. Now we know what needs to be done. The audit plan feeds the project management plan.

Notice the risk assessment process and audit plan informs the project management plan. Notice also that the project management plan is not the same as the audit plan; they are distinctly different. One addresses risk and the other addresses the how, when, and who of getting things done. For me, my audit plan lives in the audit programs (inside my audit software), and my project management plan lives in Basecamp in the cloud. 

Here’s an example of how the risk assessment process feeds my project management plan. As I perform my risk assessment procedures, I see that one person makes disbursements, records the payment, and reconciles the bank statement. Now I know the client lacks segregation of duties in the payables area and has a fraud risk. I will respond to those risks by performing procedures such testing disbursements. Now I know what I am to do. In my project management plan, I need to marry this audit procedure (the testing of disbursements) to a team member. So, I add the task to my project management plan and assign it to one of my people. I also specify a performance date.

Some audit tasks are performed in every audit, regardless of the audit risks, such as obtaining a signed representation letter.  These tasks can be set up in a project management template which can be used to create your initial project management plan. Then you can add the client-specific tasks as needed.

When

Thirdly, we need to specify a date for each action.

Project management software allows you to specify when an action is to occur. Once I know who is on the audit team and what is to be done, my remaining duty is to specify a date for the action. You may wonder, “how do I know when each action will occur?” You may not know precisely, but you have an idea. So, go ahead and specify a date. If later you need to change that date, you can. There is no sin in amending the plan. 

Now that I have a project management plan, I need to be aware and vigilant to keep the plan on track.

Be Aware

The purpose of project management is to enable you to control your audit. But many times the original scope and particulars of our audits change. And if our project management plan doesn’t change concurrently, we lose control.

using project management in audits

For example, if your audit team discovers a fictitious vendor fraud, then your time budget may need to expand. Let’s say we believe the audit will now take an additional 80 hours, and that we need to bring in a fraud specialist. At this point, if we don’t amend the engagement letter, we’ll eat this additional cost. So, it’s time to ask the client for an additional fee. The fraud was not anticipated in the original contract. Now, you need to amend the contract to cover the additional work. (Construction contractors do this all the time with change orders. But auditors are often hesitant to do so.)

As you perform your audit, be aware of scope creep. If your client asks you to perform additional services, then amend your contract. Otherwise, your profit realization will diminish quickly. This is especially true for bid audits such as governmental engagements.

More times than not, changes will occur during the engagement. And regardless of the cause, we must amend our plan. For me, I’m going back into Basecamp and adding additional steps.

In addition to being aware of potential changes, we need to be vigilant.

Be Vigilant

We know from experience that it is natural for the audit process to fall apart. It’s like most things in our universe. Entropy happens.

When it does, you must fight to restore order. Why is this so hard to do? Because you have so much going on. You aren’t working on one audit. You’re working on two–or three. You have office meetings, client meetings, tax deadlines. You are busy! Therefore, if you don’t have a way to maintain control, you will feel desperate.

But that’s the beauty of project management. With it, you can maintain control.

Think of your project management plans as dashboards that flash green or red lights. And those indicators allow you to see how things are progressing–or not. Moreover, this knowledge allows you to react in real time–and to stay vigilant. As you monitor your audits, you can take corrective actions to keep your projects on track.

Summary of Using Project Management in Audits

Project management is simple in concept. You plan tasks, you assign them, and you specify due dates. Then you need project management software to track the actions, assignments and due dates. Once the system is in place, you can monitor your projects and manage change.

So why do most auditors not use project management? Because many think they can do so in their heads–and I know many who feel this way. Sorry, but I have to disagree. If you’re like me (and I bet you are), you have a million things going on. So without project management, you’ll do your work by the seat of your pants. The result? Missed deadlines. Frustrated clients and disappointed partners. Not what you desire.

So, give it try. You will find yourself delivering audits on time and on budget.

Auditing Blog Series

This post is a part of my auditing series. In it, I take you from the start to the end of the audit process. Click here if you’ve missed my prior posts.

What’s on a CPA’s Computer Desktop?

I'm sharing what's on my computer desktop

I’m always curious about what another golfer has in his or her bag. 60-degree wedge? Belly Putter? Callaway driver? You can tell a lot about a golfer by what he carries.

The same is true with, “what’s on a CPA’s computer desktop?” Our desktops say a great deal about how we think and get things done.

So, in the interest of sharing, here are some things on my desktop. Hopefully, you’ll see some ideas that you can use. 

CPA's Computer Desktop

 

CPA’s Computer Desktop

1. Checkpoint Tools for PPC.

With one click I can see all of the practice aids I’ve subscribed to, things like:

  • Engagement letters
  • Audit programs
  • Risk assessment forms
  • Letters to those charged with governance

I also have access to PPC’s Interactive Disclosure Libraries. I use this to find sample note disclosures.

2. The peer review general audit engagement checklist.

With one click, I can see what the AICPA peer review checklist says about work papers. (There are many more peer review checklists, but this one provides a generic quick look.)

3. The most recent PPC disclosure checklist.

The checklist provides me with quick answers to disclosure questions.

4. TValue Link.

Need a loan amortization? It’s one click away.

5. Scansnap Organizer Link.

I keep a Fujitsu iX500 ScanSnap scanner on the corner of my desk. When paper arrives, I scan it and file it.

6. Link to Excel (in Windows toolbar).

One click to spreadsheets.

7. Link to Word (in Windows toolbar).

One click to documents.

8. Snipping Tool (accessed with Windows Start button)

I use the Windows snipping tool to capture anything on my screen quickly.

9. Link to Adobe Acrobat (in Windows toolbar).

How can one live without Adobe Acrobat? Scan and annotate your documents.

10. Link to Judy’s Tenkey (in Windows toolbar).

One click to my electronic adding machine.

11. Link to Evernote (in Windows toolbar).

One click to my personal digital library.

12. Link to Firefox (in Windows toolbar).

Yes, I’m a Firefox fan (I like it better than Explorer).

13. ShareFile icon (in Windows toolbar).

One click to secure file sharing.

14. Zoom icon (in Windows toolbar).

One click to conferencing software.

Finally, let me recommend Fences (by Stardock) for Windows-based systems. It allows you to group your desktop icons into one area of your screen (e.g., Research). 

That’s what’s on my desktop. What about yours?

How CPAs Can Use the Evernote App on Their iPhones

Here is a series of videos showing how you can use the Evernote app on your cell phone

How can CPAs use the Evernote app on their iPhones? Evernote is one of the most valuable tools that an accountant or CPA can use. You just have to know what it can do and how to use it–and it’s not that hard (I promise).

Here’s an Evernote short-course. See the four videos below for demonstrations of how the iPhone Evernote app will work for you.

Using iPhone Evernote app

1. An Evernote Overview

This video provides an overview of the Evernote app on an iPhone. You’ll see how easy it is to create and search notes.

For more information, see my post Evernote for CPAs. This post provides a printable summary of how you can create and use notes.

2. How to Add a New Note

This video shows you how to add a new note to your Evernote library.

3. How to Add Audio and Photograph File to Evernote

This video demonstrates how to add audio files or photographs to your Evernote library. You can start a new file in seconds. Click here to see how.

For additional tips regarding how to add new notes, see Seven Ways to Feed Evernote.

4. Using the Search Bar

After you’ve used Evernote for a while, you may have several hundred files. Then you may find it more challenging to find the needle in the haystack. But Evernote provides a powerful search bar that enables you to find what you need.

Here are additional Tips on Searching Your Evernote Account.

You can download your Evernote iPhone app here

How to Organize Your Computer Desktop with Fences

Do you get lost looking for app or document icons on your desktop?

Most accountants like organization, yet I often see total chaos on their computer desktops.

A typical CPA’s screen looks like this.

Organize desktop

We’d be much better off if our desktops looked like this.

fences

Creating Order on Your Desktop

So how can you bring order to your desktop?

Use Fences. The cost is $9.99, but well worth the iconic bliss.

Once Fences is downloaded, you simply right-click and drag on your screen to create a new fence (see below). Above you see a fence titled “Programs.” You can arrange the icons in whatever order you wish. To add an icon to a fence, you simply drag it to the desired location.

Create Fence

Once you arrange your icons, they stay that way. When you reboot your computer the next morning, you’ll find your icons in the same order. 

Fences YouTube Video

Here’s a video that provides additional information:

My Experience with Fences

I’ve used Fences for about five years and have found it useful. I recommend it.

To see physical office setup ideas for accountants, click here.

Audit Lessons from a Brain Tumor

Life teaches us unexpected lessons

I said to my wife, “Am I driving straight?” I felt as if I was weaving, not quite in control. I felt dizzy and heard clicking noises in my ears.

The mystery only increased over the next two years as I visited three different doctors. They stuck, prodded, and probed me–but no solution.

Frustrating.

Doctor Looking at Head Xray on blue

Picture is courtesy of istockphoto.com

Meanwhile, I felt a growing numbness on the right side of my face. So one night I started Googling health websites (the thing they tell you not to do) and came upon this link: Acoustic Neuroma Association. I clicked it. It was like reading my diary. It couldn’t be. A brain tumor.

The next day I handed my doctor the acoustic neuroma information and said, “I think this is what I have. I want a brain scan.”

Two days after the scan, while on the golf course, I received the doctor’s call: “Mr. Hall, you were right. You have a 2.3-centimeter brain tumor.” (I sent him a bill for my diagnosis but he never paid–just kidding.) My golfing buddies gathered around and prayed for me on the 17th green, and I went home to break the news to my wife. I had two children, two and four at the time. I was concerned.

Shortly after that, I was in a surgeon’s office in Atlanta. The doctor said they’d do a ten-hour operation; there was a 40% chance of paralysis and a 5% chance of death. The tumor was too large for radiation–or so I was told.

I didn’t like the odds, so I prayed more and went back to the Internet. There I located Dr. Jeffrey Williams at Johns Hopkins Hospital in Baltimore. I emailed the good doctor, telling him of the tumor’s size. His response: “I radiate tumors this size every day.” He was a pioneer in fractionated stereotactic radiation, one of the few physicians in the world using this procedure (at the time).

A few days later, I’m lying on an operating table in Baltimore with my head bolted down, ready for radiation. They bolt you down to ensure the cooking of the tumor (and not the brain). Fun, you should try it. Four more times I visited the table. Each time everyone left the room–a sure sign you should not try this at home.

Each day I laid there silently, talking to God and trusting Him.

Three weeks later I returned to work. Eighteen years later, I have had one sick day.

I’ve watched my children grow up. They are twenty-one and twenty-three now–both finished college. My daughter is engaged to be married. My wife is still by my side, and I’m thankful for each day.

Cades Cove, Tennessee with my wife

So what does a brain tumor story tell us about audits? (You may, at this point, be thinking: they did cook the wrong part.)

Audit Lessons Learned from a Brain Tumor

1. Pay Attention to Signs

It’s easy to overlook the obvious. Maybe we don’t want to see a red flag (I didn’t want to believe I had a tumor). It might slow us down. But an audit is not purely about finishing and billing. It’s about gathering proper evidential matter to support the opinion. To do less is delinquent and dangerous.

2. Seek Alternatives

If you can’t gain appropriate audit evidence one way, seek another. Don’t simply push forward, using the same procedures year after year. The doctor in Atlanta was a surgeon, so his solution was surgery. His answer was based on his tools, his normal procedures. If you’ve always used a hammer, try a wrench.

3. Seek Counsel

If one answer doesn’t ring true, see what someone else thinks, maybe even someone outside your firm. Obviously, you need to make sure your engagement partner agrees (about seeking outside guidance), but if he or she does, go for it. I often call the AICPA hotline. I find them helpful and knowledgeable. I also have relationships with other professionals, so I call friends and ask their opinions–and they call me. Check your pride at the door. I’d rather look dumb and be right than to look smart and wrong.

4. Embrace Change

Fractionated stereotactic radiation was new. Dr. Williams was a pioneer in the technique. The only way your audit processes will get better is to try new techniques: paperless software (we use Caseware), data mining (we use IDEA), real fraud inquiries (I use ACFE techniques), electronic bank confirmations (I use Confirmation.com), project management software (I use Basecamp). If you are still pushing a Pentel on a four-column, it’s time to change.

Postscript

Finally, remember that work is important, but life itself is the best gift. Be thankful for each moment, each hour, each day.

Evernote for CPAs: Developing a Super Power

Here's how you can use Evernote to make yourself more productive

Evernote is a game-changer for CPAs.

What is Evernote?

Think of it as your personal digital library. 

Evernote is a cloud-based storage system which allows you to capture and file voice recordings, documents (including Word, Excel, PDFs), pictures, and videos. Once information is placed in Evernote, it is searchable in a Google-like fashion. Even hand-written notes are searchable.

Evernote for CPAs

Picture is from AdobeStock.com

Things CPAs Can Do with Evernote

Here are examples of what you can do with Evernote:

  • Create a personal digital library (e.g., use an Evernote digital notebook to store Journal of Accountancy articles, CPE material, and videos of class instruction)
  • Share individual files or notebooks (a compilation of files) with others (with the premium version you can collaborate with others, allowing them to change Excel or Word files)
  • Capture meeting conversations with your smartphone and save them to Evernote
  • Use your smartphone to take a picture of meeting notes on a whiteboard (remember manually written words are searchable in Evernote)
  • Encrypt selected text within an Evernote note (password protected); it can’t be viewed without the password
  • Add selected web information to Evernote using an Evernote clipper 
  • Email any document directly to your private Evernote email address (which adds the emailed information to a “to be filed” folder in Evernote)
  • Create a local Evernote notebook for sensitive information (the notebook resides on your local computer and does not synchronize to your Evernote cloud account)

The Skeletal Framework: Notes, Notebooks, and Tags 

Evernote for CPAs

1. The primary element of Evernote is a note.

Think of a note as a blank piece of paper on which you can type. You can also attach other files to the note (e.g., an Excel spreadsheet or a picture taken with your cell phone or a voice message recorded with your cell phone).

2. Notes are placed in notebooks.

Think of a notebook as a three-ring binder.

For example, if I want to create a note about comprehensive income, I can do so. Then I can attach related files (e.g., PDFs) to the note. Next, I might add a note about other comprehensive income and another about reclassifications from other comprehensive income. The separate notes can be–for example–a text file, an Excel file, and a voice message.

All three notes can be added to a notebook titled Comprehensive Income.

3. You may also tag each note.

Alternatively, I can place the comprehensive income notes in a notebook titled accounting (a more generic category) and tag each note as comprehensive income. Then I can search and find all comprehensive income notes by using the comprehensive income tag. When I type tag:”comprehensive income” in the Evernote search bar, all such notes appear.

Getting Information Into Evernote

Feed your Evernote account in multiple ways.

You can use Evernote apps or programs on your iPad, PC, and smartphone to add information to your account. 

I use this smartphone app to make and save pictures, notes, and voice messages to my Evernote account.

Evernote also provides you with a unique email address that can be used to feed information into your personal cloud. When you find something you want to store, you can email it to your Evernote account.

Also, you can use the Evernote clipper to capture information on the fly, such as when you are browsing the Internet. Just download the Clipper program from the Evernote website. 

Another neat way to get information into Evernote is with your scanner. I use a Fujitsu ScanSnap to feed scanned pages directly into Evernote.

Using Evernote on an iPhone – An Example

In this two minute video, I demonstrate the use of notebooks and notes inside of my Evernote account.

To Create Your Account

To create your account, go to the Evernote website and follow the directions. There is a free version if you desire to try it out. The premium version is $70 per year.

Recommended Books

Here are two recommended books if you desire to learn more about Evernote:

  1. Evernote Essentials 
  2. Evernote For Dummies 

CPA Scribo Facebook Group: Join Now

If you are interested in some dialog about accounting and auditing issues, I invite you to join my new Facebook group: CPA Scribo.

Why the group? I believe this will give you a community where you can engage with other CPAs and accountants on a one-on-one basis. The communication will be more free-flowing than my blog.

So join and share a thought, a pain, a victory, a challenge, a question. I look forward to getting to know you better.

It’s a closed group, so you will need to ask to join.

The link to join is: https://www.facebook.com/groups/1260820653952216/?ref=bookmarks

How to Review Financial Statements on Computer Screens

Here are suggestions to help you review financial statements

Today I give you seven steps to review financial statements on computer screens.

I recently provided you with a post titled How to Review Financial Statements Efficiently and Effectively. That article provides information about creating and reviewing financial statements, but it does not provide information about doing so on a computer screen. Many accountants prefer to review physical copies of financial statements. Others prefer to do so on their computer screens. This article is for the latter group.

reviewing financial statements

How to Review Financial Statements on Computer Screens

  1. First, open and visually scan the entire financial statement (spend two to three seconds per page) just to get a feel for the whole product. How do the parts fit together? Are the financial statements subject to the Yellow Book? Do they contain supplementary information? Are the statements comparative?
  2. Second, use a large computer screen (22 inches or more) to compare your financial statement pages. Reduce the financial statement page size by holding the control key down and scrolling back with your mouse. As you do so, you will see multiple statements on the screen, for instance: balance sheet, income statement and cash flow statement.  Now that you can see multiple statements, you can tick and tie your numbers. I use step 2. to compare the financial statement numbers. For example, I compare the net income number on the income statement to the same number on the cash flow statement. Then I use step 3. to compare the financial statements to the notes and the supplementary information.
  3. Next, use two to three computer screens to compare your financial statements with the notes and supplementary information. Open the financial statement on each screen–for instance, the balance sheet on screen 1, the notes on screen 2, and the supplementary information on screen 3. In Word, click View, New Window and another instance of the document will open. Then you can move the new instance to a second screen. Alternatively, you can use the side-by-side feature in Word to place two open documents on one screen. (To see my physical office setup, click here.)
  4. After completing your review of the notes, return to and take a second look at the balance sheet to see if the disclosures are complete. (Since you just reviewed the notes, it’s easier to compare them to the balance sheet. If, for example, you look at the balance sheet and see inventory but no disclosure for the same, you’ll more easily see the error.)
  5. Use the find feature (in Word, click the Home tab, click Find, then key in the number–or word–you are looking for) to locate words or numbers. If you want to compare the long-term debt number on the balance sheet to the notes and to supplemental information, type that number into your search dialog box and you’re immediately taken to the same number in the notes. Click next, and you will see the next instance (in the supplementary information). You can do the same with words. (Note-If you embed Excel tables in the Word document, the find feature will not locate numbers in the embedded tables.)
  6. When needed, take breaks. Never spend more than 1.5 hours reviewing statements without taking a short break. You get more done by relaxing periodically.
  7. Finally, if you are reviewing financial statements in Word, consider turning on Track Changes and key in suggested revisions. Word reflects your modifications in a distinct color–that way, others can see your suggested changes. They can also see who made the suggested corrections. Thereafter, they can accept or reject the proposed changes.

Your Suggestions

Those are my ideas. What are yours?