Best Practices for Audit Efficiency
Firms cited for their excellent quality controls share practice tips on how to improve audits while saving time and enhancing profits. When it comes to audit efficiency, sometimes less is more. Many CPA firms have found it's possible to slash the amount of time involved while still meeting professional standards. They've discovered that by working smarter, they can maintain--and even improve--quality even while cutting back on the hours invested in audit engagements and enhancing profit. Because the most valuable practice ideas often come from the experiences of other CPA firms, the AICPA PCPS task force on adding value to peer review commissioned a survey on best practices in audits of not-for-profit entities among a group of small and midsize firms known to have excellent quality controls. The task force targeted the NPO sector because it poses particular challenges to audit efficiency, given the fact that NPOs often have lean operations and little if any accounting staff expertise. However, the best practices uncovered can be applied to audits in any field. This article reports the survey results and offers personal insights from a number of CPAs on how they boost efficiencies in their firms. BEST PRACTICES The study revealed that there were four important steps to achieving audit efficiency 1. Manage and train the client. CPAs can work much more efficiently when clients supply them with all the data they need. If a CPA's staff has to spend time doing catch-up bookkeeping work or locating and copying needed files, the length of the audit probably will increase and the firm is much less likely to realize 100% of the value of its fees. "You have to separate assistance from auditing," says Deborah Lambert, a partner of Johnson Lambert & Co. in Bethesda, Maryland, and chairwoman of the AICPA auditing standards board. "Too often we get in there and the client has things that aren't reconciled or account analysis that isn't done. We end up rolling all our extra work into the audit and not getting paid for it." To prevent this problem, her firm has experimented with creating two separate groups: a traditional audit team and another, "swat" team that prepares clients for the audit. Introducing the swat team and a different engagement letter for its work "forces a conversation up front with the higher level people where we say, `Here's what's not ready, here's what needs to happen, here's how we can help and this is what it will cost.'" At Weaver & Tidwell in Dallas, partner Gary Hoffman reviews the possible engagement efficiencies with clients at the planning Conference. "We look at what added or saved time or money during the previous year's engagement so we can reinforce the right client behavior. The clients see how they can provide us with better assistance and the financial impact that will have on engagement time." The survey revealed other strategies for ensuring clients are prepared for their audits: * Starting at the top. Practitioners meet with boards of directors and ask them to communicate audit value to organization staff members and urge them to cooperate in engagement preparation. * Making it as easy as possible. Firms provide explicit lists of what is needed with clear examples and due dates. * Charging for preparation work the auditors must do and mentioning the extra charge in the engagement letter. * Discounting the fee when proper preparation is performed. Firms found a small inducement can cost less than taking on preparation work themselves. * Rescheduling fieldwork if the client is not ready. * Developing realistic expectations. Firms know clients won't complete all the preparation work needed at first, but once they start with basic expectations, they can add more responsibilities each year. 2. Retain clients and staff. Firms agreed that a meaningful investment in an industry niche was an important contributor to efficiency. …