5 Common Audit Deficiencies Identified During Peer Review

From time to time, we come across some older content in the archives that is still relevant today. Back in 2011, Stephanie Lanke and Robin Penney took a look at the top 5 most common audit deficiencies, as outlined in Accounting Today. Lanke, formerly our Customer Experience Manger was responsible for the CCH ProSystem fx Knowledge Coach onboarding program. And Penney was the Technical Product Manager and principle designer of CCH ProSystem fx Knowledge Coach. They had some interesting and useful things to say about audit deficiencies.

Common Audit Deficiency #1: Inadequate Internal Controls Assessments

Stephanie Lanke: When conducting an audit today, many auditors often don’t go outside of the accounting department to evaluate controls. However, just because someone is not a member of the accounting department does not mean they don’t participate in the accounting of a transaction. By only talking to the accounting department, it is possible to miss what can go wrong in the business — whether in sales, information technology, the warehouse, or security checkpoints.

Robin Penney: In addition, some firms don’t test controls or simply set the control risk at maximum. Auditors are required to consider how deep of an understanding of controls they need to get in certain areas, and then to document the design of controls and whether or not they are effective in their design. After that is completed, they may proceed with the testing of the controls. Setting control risk to maximum without really understanding the controls at all, can actually create more work for the auditor. How? By forcing them to pick more samples and evaluate more procedures because they haven’t fully evaluated the client’s controls.

Stephanie Lanke: Additionally, when you think of the phrase “Knowledge-Based Audit,” the control evaluation process is an excellent opportunity to gain critical knowledge. Lack of understanding the client almost always leads to over-auditing. As a reviewer, it can be a challenge to see the clear documentation of controls when they are documented in a narrative form.  This because the reviewer can’t easily see the key controls, the relevant assertions, and what procedures were performed to address those assertions and controls in the control testing process.

Common Audit Deficiency #2: Failure to Link Risk Assessments to Audit Procedures

Robin Penney: The desire to more clearly link risk assessments and audit procedures is one of the most common reasons firms consider CCH® ProSystem fx® Knowledge Coach for their practices. To meet the requirements of the AICPA’s risk assessment standards, Wolters Kluwer developed a specific feature designed to directly link audit procedures to risks identified by the auditor. If steps are not connected, the auditor will receive a diagnostic that highlights an unaddressed risk, an unaddressed assertion or a program step not linked to a risk.

Stephanie Lanke: Knowledge Coach enables the auditor to easily see which steps address which risks, ensuring a complete and accurate audit. All the links flow into one central Summary of Risk Assessments document and into a handy Risk Pane.

Common Audit Deficiency #3: Failure to Identify or Implement New Standards

Stephanie Lanke: Knowledge Coach has the capability to update content to the latest version of industry titles whenever the auditor desires. Auditors can either update information during the binder roll-forward process or they can roll the binder forward first. This then can help them update on-the-fly in an active engagement. In a merging process, Knowledge Coach can keep things like answers to questions, sign offs, workpaper references, custom rows and edits to program steps. It also brings in the new content as well, keeping the auditor up-to-date and current.

In the past, practitioners had to wait for the latest content to come out. And they often worried about missing an update. With Knowledge Coach, auditors can start planning whenever they want without worry and update content at any time, on-the-fly.

Common Audit Deficiency #4: Not Understanding Specialized Industry and Reporting Situations

Robin Penney: Each Wolters Kluwer specialized title is tailored to the specific industry, including the program steps, reports, different correspondence letters and what needs to be handled during planning and financial statement disclosure checklists. Wolters Kluwer is constantly monitoring industry developments to keep clients up-to-date and current with the latest requirements.

Stephanie Lanke: In addition, users can customize Knowledge Coach for their clients. For example, one client we work with serves a number of school districts. He started with the Government title and then customized his engagements from there.

Common Audit Deficiency #5: Inadequate Tailoring of a Firm’s Quality Control System

Stephanie Lanke: The reality is that very real business risks can indeed happen and peer review is only part of the quality control process. We have seen customers with clean peer reviews still feel that there were inconsistencies with their risk assessment process. They felt that they were only able to monitor the obvious risks, leaving the firm exposed.

We don’t make professional judgments for the auditor. Instead, we guide them, provide recommendations and highlight potential errors, but the ultimate decisions remain with the professional.

Robin Penney: Over time, this knowledge leads to improved efficiency. Once you understand the methodology, you can contribute more as a business advisor to your clients. This is because you will truly know the inner workings of their businesses.

The proof is in the results

As you can see, Knowledge Coach takes a unique approach to reducing audit deficiencies. It helps auditors avoid these common audit deficiencies and conduct more accurate, and therefore higher-quality, audits.

“Many things affected our decision to go to Knowledge Coach. We looked at the changes in our profession and how competitive it is … So we asked, ‘What can we do differently?’ We wanted to make sure we covered the standards … And at the same time, we wanted to be competitive and more profitable.”

— Jim Bourke, CPA, CITP, CFF, CGMA, Partner, Director of Firm Technology, Withum

“Knowledge Coach has made a huge difference for our firm. With our previous software, the audit program was separate from the workpaper management tool. Everything being in one place streamlines the process.

— Jacqueline Lee, Principal at Mengel Metzger Barr & Co

Watch the video below to see how one early adopter still believes Knowledge Coach is the way to go!

Furthermore, take a look at this white paper Innovative Ways to Improve Audit Quality without Sacrificing Efficiency for more about reducing audit deficiencies. Or, see for yourself how you can create higher quality audits with a complimentary demo.

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

All stories by: Wolters Kluwer Tax and Accounting