Recently, Wolters Kluwer’s Cathy Rowe interviewed Carl Mayes about the latest findings around the AICPA Enhancing Audit Quality (EAQ) Initiative. Carl serves as Associate Director of CPA Quality and Evolution for the AICPA. Consequently, he heads up the EAQ Initiative and manages the effort to future-proof CPA licensure requirements.
Additionally, Matthew Reiter, Quality Control Partner for Whitley Penn’s Audit Practice, joined Cathy and Carl in the discussion. He shared the practices and technology his firm uses to address top issues that impact audit quality.
I’ll summarize some of the key points in this Audit Talks podcast below; however, the entire conversation contained valuable insights for auditors and firm managers. Listen to the podcast and learn what the EAQ Initiative uncovered about the most pervasive issues affecting risks of material misstatement. Plus, receive tips for how to avoid the same issues in your practice.
Where do the biggest issues remain with audit quality?
Cathy asked Carl for the AICPA perspective on the most common areas of deficiencies coming up on peer review. Above all, nonconformity remains heightened in the areas of risk assessment and internal controls. Significantly, the EAQ Initiative has highlighted these areas within their top five list since 2017. Further, the data collected by the AICPA indicates over half of engagements reviewed in 2017 were materially noncompliant with the 315 or 330 standards.
Carl provided specific examples of each of four common areas of nonconformity. Listen to the podcast for his complete explanations, but here’s a quick summary:
- One, there’s a presumption that the client lacks controls and auditors head straight to testing.
- Two, auditors fail to determine any significant risks, when most engagements actually have multiple risks.
- Three, the audit fails to identify assertion level risks properly.
- Four, audits don’t document links between the risks determined during assessment and the subsequent procedures performed.
Why has it become more important for firms to change?
Obviously, firms should endeavor to comply with professional standards at all times. However, Carl sees this time period as particularly critical for auditors because of the COVID pandemic. In light of changes implemented by businesses in 2020 and 2021, auditors should exercise heightened diligence about internal controls and fraud risk. Furthermore, peer reviewers have been retrained to examine how firms conduct risk assessment, so firms can expect a deeper look into that during their peer reviews.
How can firms break down silos within the audit?
In many cases, audit teams lose track of how different parts of the audit relate to each other. In other words, audit planning becomes a silo, risk assessment becomes another silo, and so on. This results in auditors failing to see the overall picture and how the pieces fit together.
Matthew related how Whitley Penn overcomes common audit quality issues through a combination of training, technology, and internal reviews. In the first place, the firm conducts annual training and internal presentations to address audit quality topics. Additionally, they conduct internal inspection reviews specifically focused on how well the team identifies significant risks and the assertions related to those risks. Finally, the internal quality team also reviews the audit steps subsequently performed.
To ensure the team emphasizes developing an audit plan and thorough risk assessment , Whitley Penn utilizes CCH® ProSystem fx® Knowledge Coach. Prior to going in the field, Knowledge Coach guides the audit team to complete a tailored risk assessment together, identify significant risks, and then develop audit procedures. Moreover, by concentrating more of their time on planning, Knowledge Coach helps the team ensure they spend most of their time in the field focused on high-risk areas. This is real team collaboration – no more audit silos.
Listen to the podcast to hear all of Whitley Penn’s audit best practices and AICPA perspectives on standards and audit quality.