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How to Identify and Manage Audit Stakeholders
By Harry Hall | Auditing
Some auditors perform the same procedures year after year. These individuals know the drill. Their thought is: been there; done that. But, before we start the engagement, we need to identify the audit stakeholders.
Imagine a partner or an in-charge (i.e., project manager) with this attitude. He does little analysis and makes some costly stakeholder mistakes. As the audit team starts the audit, they encounter surprises:
Furthermore, imagine the team returning to your office after the initial work is done. The team has every intention of continuing the audit; however, some members are being pulled for urgent work on a different audit.
These changes create audit risks–both the risk that the team will issue an unmodified opinion when it’s not merited and the risk that engagement profit will diminish. Given these unanticipated factors, the audit will likely take longer and cost more than planned. And here’s another potential wrinkle: Powerful, influential stakeholders may insist on new deliverables late in the project.
So how can you mitigate these risks early in your audit?
Perform a stakeholder analysis.
“Prior Proper Planning Prevents Poor Performance.” – Brian Tracy
The Project Management Body of Knowledge defines a stakeholder as, “individuals, groups, or organizations who may affect, be affected by, or perceive themselves to be affected by a decision, activity, or outcome of a project.” Anyone impacted in a positive or negative way is a stakeholder.
Typical audit stakeholders include:
As you conduct your preliminary interviews and surveys, ask each person to help you identify individuals, groups, and organizations that may be impacted by the audit. Ask stakeholders you’ve worked with in previous years to let you know about changes in staff or other stakeholders.
Identify the stakeholders at different levels of the client’s organization. Analyze the following:
If there are few changes from the prior audit, the stakeholder analysis will take very little time. If there are significant changes, the analysis will provide information for better estimating the effort, duration, and budget for the audit.
Project managers should perform the initial stakeholder analysis early in the project. Project managers should also review and update the stakeholder analysis periodically.
In the Closing Process, review the Stakeholder Analysis. What did we miss? How might the stakeholders change for next year?
Now that we have identified the stakeholders, we need to determine how we will engage the stakeholders throughout the project life cycle. This action plan should clearly communicate who you will engage, how you will engage them, and the purpose of the interactions. Particular attention should be given to the stakeholders who have high authority/power and high influence.
Save yourself heartburn.
Invest a little time early and identify your audit stakeholders. Determine ahead of time how you will engage the high power/high influence stakeholders. These simple steps will improve the probability of meeting your client’s needs and completing the engagement on time and under budget.
Here’s an additional article (by Charles) about using project management in audits.
I am the twin brother of Charles Hall, CPAHallTalk’s blogger. Here we are at University of Georgia football game.
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[…] The stakeholders of any audit report are directly affected by the information you publish. Delivering an unbiased and transparent opinion on their work gives reasonable assurance to the company’s stakeholders. Remember, there is a difference between absolute assurance and reasonable assurance. An auditor should report material misstatements rather than focusing on something that doesn’t make a huge difference. […]
[…] need to submit their audit report to stakeholders, which means they are always in need of one. You can become an internal auditor with a regular job […]
Tale, I do think it’s wise (though seldom done) to consider all stakeholders. Doing so might early identify additional work that needs to be done, and it would also show how attentive you are to all parties. Of course, your main considerations should be for management and the board—the main stakeholders.
Tale, I do think the stakeholders should be considered before creating your engagement letter. Why? Different stakeholders have different needs. Generally, the audit of the financial statements should satisfy most stakeholders, but it’s possible a particular stakeholder has a unique need that the auditor can meet while performing the audit. For example, the examination of 100% of inventory. If this is needed, you can create an agreed upon procedures engagement letter (separate from the standard audit engagement letter) to address that service. Or another example might be a lender wants supplementary schedule (to be audited) that provides a detail of miscellaneous income. If yes, then you’d need to include the audit of supplementary information in the audit engagement letter. The main point here is you want to lessen the possibility of surprises. By knowing the needs of the audit stakeholders, you can do just that.
Hi Charles,
Thanks for this
Could this mean that when drafting an audit proposal, stakeholders should also be considered. Who are the stakeholders to be considered when writing an audit proposal
Thanks, Sanwar.
You guys are awesome!!!!
Planning is the key. Knowing who we are going to interact with and why is critical. Too many auditors grab the prior year file and proceed without truly thinking about and planning for all that needs to occur. The problems always seem to float to the surface in the last week of the audit–and worse yet, they sometimes surface months after the release of the report.