Seven Deadly (Audit) Sins

Sometimes we sink our own ships

Seven deadly audit sins can destroy you.

You just completed an audit project, and you have another significant write-down. Last year’s audit hours came in well over budget, and at the time you thought, “This will not happen again.” But here it is–again.

Here are seven deadly (audit) sins that cause our engagements to fail.

Seven Deadly Audit Sins

Picture is courtesy of DollarPhotoClub.com

1. We don’t plan.

Rolling over the prior year file does not qualify as planning. Including PPC programs–though I use them myself–is not planning.

What do I mean? The engagement has not been properly scoped. We don’t know what has changed and what is required. Each year, audits have new wrinkles.

Are there any fraud rumors? Has the CFO left without explanation? Have cash balances decreased while profits increased? Does the client have a new accounting program? Can you still obtain the reports you need? Are there any new audit or accounting standards?

Anticipate issues and be ready for them.

2. SALY lives.

Elvis may not be in the house, but SALY is.

Performing the same audit steps is wasteful. Just because we needed the action ten years ago does not mean we need it today. Kill SALY. (No, I don’t mean your staff member; SALY stands for Same As Last Year).

I find that audit files are like closets; we allow old thoughts (clothes) to accumulate without purging. It’s time for a Goodwill visit. Are all of the prior audit procedures relevant to this year’s engagement?

Will better planning require us to think more in the early phases of the engagement? Yes. Is this hard work? Yes. Will it result in less thinking and work (for the overall project)? Yes.

3. We use weak staff.

Staffing your engagement is the primary key to project success. Excellent staff makes a challenging engagement pan out well. Poor staff causes your engagement time to balloon–lots of motion, but few results.

4. We don’t monitor.

Partners must keep an eye on the project. And I don’t mean just asking, “how’s it going?” Look in the audit file. See what is going on. In-charges will usually tell you what you want to hear. Their hope is to save the job on the final play, but a Hail Mary pass often results in a lost game.

Charles’ maxim: That which is monitored, changes (for the good).

Or as Ronald Reagan once said: Trust but verify.

5. We use outdated technology.

Are you paperless? Using portable scanners and monitors? Are your auditors well versed in Adobe Acrobat? Are you electronically linking your trial balances to Excel documents? Do you use project management software (e.g., Basecamp)? How about conferencing software (e.g., Zoom)? Do you have secure remote access to audit files?

6. Staff (intentionally) hide problems.

Remind your staff that bad news communicated early is always welcome.

Early communication of bad news should be encouraged and rewarded (yes, rewarded, assuming the employee did not cause the problem).

Sometimes leaders unwittingly cause their staff to hide problems; in the past, we may have gone ballistic on them–now they fear the same.

7. No post-reviews.

Once our audit is complete, we should honestly assess the project. Then make a list of inefficiencies or failures for future reference.

If you are a partner, consider a fifteen-minute meeting with staff to go over the list.

Your Ideas

What do you do to keep your audits within budget?

A CPA’s Office Setup

Your office design can make you more efficient

In this post, I provide an example of a CPA’s Office Setup.

So, what’s the best way for a CPA to set up his or her office?

I am constantly tinkering with how my office is laid out and what is in it. Should I use three computer screens or four? Where should I place my scanner? Do I need a coffee maker in my office (to avoid the long trek to the office kitchen)? What kind of aesthetics do I want?

Here are a few pictures of my office. I share these in the hopes you might find one thing beneficial to you. The most helpful additions–at least for me–have been:

What would you do differently?

photo 1

 

 

 

 

 

 

 

 

 

 

photo 3

photo 2

10 Steps to Make Your Work Papers Sparkle

Ever been insulted by an audit review note?

Your tickmarks look like something my third-grader created.

Rather than providing guidance, the comment felt like an assault.

Or maybe you are the reviewer–you stare at a work paper for several minutes– and you’re thinking, “what the heck is this?” Your stomach tightens as you continue, “I really don’t have time for this right now.”

Picture Courtesy of Canva

Picture Courtesy of Canva

Here are ten steps to make your work papers sparkle.

  1. Timely review work papers. The longer the in-charge waits to review notes, the harder it is for the staff person to explain what they did and, if needed, make corrections. Also consider that the staff person may be reassigned to another job; consequently, he may not be available to clear the review notes.
  2. Communicate the work paper’s purpose.

a.  An unclear work paper is like a stone wall; it blocks communication.

b.  State the purpose of the work paper; for example:

Purpose of Work Paper – To search for unrecorded liabilities as of December 31, 2014; payments (greater than $30,000) made from January 1, 2015 through March 5, 2015 examined (by review of invoice) for potential inclusion in accounts payable detail as of the year-end.

Or:

Purpose of Work Paper – To provide a detail of accounts receivable that agrees with the trial balance; all amounts greater than $20,000 agreed to subsequent receipt.

If the person creating the work paper can’t state the purpose, then maybe none exists. It’s possible that the staff person is trying to copy a work paper from the prior year that (also) had no purpose.

Click Purpose Notation Explanation for brief audio comment.

c.  All work papers should satisfy a part of the audit program (plan). No corresponding audit program step? Then the audit program should be updated to include the step, or the work isn’t needed.

3.  Each work paper should have the originator’s sign-off (so we can know who created it).

4.  Audit program steps should be signed off as the work is performed (not at the end of the audit–just before review). The audit program should drive the audit process — not the prior year work papers.

5.  Clearly define tickmarks.

6.  Reference work papers. (If you are paperless, use electronic links.)

7.  Clearly communicate the reason for each journal entry.

The following explanation would not be appropriate:

To adjust to actual.

A better explanation:

To reverse client-prepared journal entry 63 that was made to accrue the September 10, 2015 Carter Hardware invoice for $10,233.

8.   When in doubt, leave it out.

Far too many work papers are placed in a work paper file simply because the client gave the document to the auditor. Moreover, once the work paper makes its way into the file, auditors get “remove-a-phobia“–that dreaded sense that if the auditor removes the work paper, she may later need it.

If you just place those documents in your audit file and do nothing with them, they may create potential legal issues for your firm–I can hear the attorney say, “Mr. Hall, here is an invoice from your audit file that clearly reflects fraud was occurring.”

Again, does the work paper have a purpose?

My suggestion for those in-limbo work papers: Place them in a “file 13” stack until you are completely done; then destroy them (and I mean completely). My firm is paperless, so I place these work papers in a recycle bin at the bottom of my work paper tree. Before going paperless, I would place them in a large manila envelop marked “file 13”.

9.  Forms should be filled out; blanks should not appear in completed work papers (use N/A where necessary).

10. Most importantly: Always be respectful in providing feedback to staff. It’s too easy to get frustrated and say or write things we shouldn’t. For instance, your audit team is more receptive to:

Consider providing additional detail in your tickmark definition: For instance–Agreed invoice to cleared check payee and dollar amount.

This goes over better than:

You failed to define your tickmark–again?

Last Remarks

What about your review process? Are there other points you would add to the list?

You may also be interested in a related post: 7 Steps to Effectively Review Financial Statements.