Balancing Audit Efficiency & Effectiveness

Audit efficiency and effectiveness is important. Indeed, today’s auditors are looking for innovative ways to drive results, strengthen relationships and create opportunities. In part, this is due to current AICPA audit quality initiatives and increased fee pressures.

To help, Wolters Kluwer recently presented a webcast through Accounting Today on this topic. William A. “Bo” Taber, III, CPA, audit partner at Robinson Grimes was my co-presenter – and this blog is based on that webinar.

Business challenges & problems

First, it’s important to understand common business challenges impacting auditing and advisory services. We came up with these as the top 5:

  • One, completing a quality audit
  • Two, incorporating analytics in the audit
  • Three, aiding client readiness
  • Four, discovering actionable insights
  • Five, maximizing realizations

Second, it’s also important to understand what’s identified as the biggest problems reported in the AICPA’s Enhancing Audit Quality: 2018 highlights and progress report. Notably, these two areas are the AICPA’s 2020 focus:

  • One: Risk Assessment – Over 50% of audits reviewed by peer reviewers responding to a survey were non-conforming due to issues with risk assessment. The biggest issues were:
    • Not linking risks to procedures
    • Not addressing significant risks
    • Lack of focus on assertion-level risks
  • Two: Failure to understand client’s controls. Auditors tend to:
    • Believe their client has no controls
    • Stop after determining whether controls exist
    • Don’t link further procedures to control-related risks
    • Don’t understand which controls are relevant to the audit
    • Improperly assess controls risk

Top-down approach

In general, a top-down approach will help drive both audit efficiency and effectiveness. To start, be sure you understand the entity, the environment and the internal controls. Next, once you are comfortable with that step, then identify specific risks, significant risks and fraud risks. Throughout the engagement, this process helps assure you are assessing risk at the assertion level.

Regarding the top-down audit approach, Bo says “We’re basically starting with that approach with the help of CCH ProSystem fx Knowledge Coach. It helps us understand risk at the financial statement level. You know what your material accounts and significant transactions are. From there, you develop your relevant assertions for those transaction classes and material accounts. Then, finally, assess the risks and link them to the audit programs. That’s the approach that we start with. Otherwise, you’re just kind of throwing a net out there and trying to catch some fish, rather than dialing in on what your true issues are like you do with the top-down approach.”

Wolters Kluwer solutions

As stated, CCH ProSystem fx Knowledge Coach uses a top-down audit approach. Designed in direct response to the AICPA’s risk assessment standards, its risk-based Knowledge Based Audit (KBA) methodology is unique. The KBA methodology starts with “understanding the entity” and “scoping the engagement”. This drives the risk assessment and audit procedures, and diagnostic alerts complete this step before proceeding.

In addition, the KBA methodology provides resources to understand the design and implementation of internal controls. Furthermore, diagnostic alerts indicate discrepancies in the audit plan and identify “what can go wrong” with these controls.

Finally, the end-result of the audit is:

  • One, it’s tailored for each client
  • Two, it links the assessed risk to the work performed
  • Three, it focuses on the entire end-to-end workflow to maximize efficiencies and guide firms to a higher quality audit without over-or-under auditing

Bo adds, “We’ve found that the Knowledge Coach errors and diagnostics helps improve staff development. Once they go through an entire audit planning process, and they learn this approach with linking risks to procedures – along with the scoping and mapping of the key accounts and transactions – it helps them better understand the standards and how they’re supposed to plan an audit. ”

In addition, Wolters Kluwer recently released the cloud-based solution, CCH Axcess Knowledge Coach. It uses the same KBA methodology and dynamic data flow, along with real-time updates, notifications and in-line diagnostics for enhanced team collaboration.

Conclusion

So, don’t let the fear of change keep you from a smart switch. You’ll overcome that fear once you’ve seen CCH ProSystem fx Knowledge Coach and CCH Axcess Knowledge Coach in action!

In fact, listen to the full webcast recording to learn more. See how these solutions combine advanced technology with a specialized methodology to provide an effective and efficient auditing process. Ensure your firm is using the best approach for implementing the AICPA risk-based standards and understanding client’s controls.

P.S. Also read Enhance Client Collaboration, a blog post that compliments this content.

AUTHOR

Joel Ortner

All stories by: Joel Ortner