Are you over auditing?
In this article, I explain how you can stop over auditing and wasting precious time. You’ll soon know why to leave in and what to leave out.
Ten audit engagements.
Each audit file with a different risk profile.
Each with a different audit plan.
Each file begging for attention in certain areas.
This afternoon I met with two CPAs to discuss ten audits they perform. Specifically we were looking to see what needed to be done, and maybe more importantly, what was not needed.
The concern was “over auditing.”
For as long as I can remember, CPAs have asked, “what am I doing that is not necessary?”
My answer is always the same: audit areas that have a risk of material misstatement. Drop everything else.
Well, how do you know if an audit procedure is not needed?
Look at the prior year workpaper and ask, “what relevant assertion and in what transaction cycle does this procedure address?” If you can’t connect the workpaper to a risk, then it’s probably not needed.
You can “reverse engineer” an audit by looking at the prior year workpapers and asking this same question over and over again: “what risk of material misstatement does this workpaper address?”
Then—and more importantly—“forward engineer” the audit plan by assessing your risk for each relevant assertion and planning (and linking) a procedure to satisfy (lower) the risk of material misstatement.
An audit file needs to be tight, without waste.
Moreover, let it speak of the important—and nothing else. An audit file is somewhat like a good speech: There are no wasted words.
So, can excessive work papers create problems?
Excessive (or unneeded) work papers can create problems, including:
1. Clutter (which degrades the message)
2. Legal exposure
Why do I say legal exposure? If your work papers are subpoenaed and there are unnecessary work papers, the opposing party may find contradictory information that works against you.
Then you know what would come next: the opposing attorney holding up a damning document as she asks, “did this work paper come from YOUR audit file?”
Keep things lean.
In summary, say what needs to be said, and nothing more.
In other words, follow these steps:
1. First, assess risk.
2. Next, plan responses to those risks.
3. Then, perform those procedures.
4. And finally, don’t do anything else.
With these steps, your audit file will say what it needs to say—and nothing else. And you will not be over auditing.
See my related article titled Seven Excuses for Unnecessary Audit Work Papers.
Check out my book on Amazon: The Why and How of Auditing.
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty-five years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention, The Why and How of Auditing, Audit Risk Assessment Made Easy, and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles consults with other CPA firms, assisting them with auditing and accounting issues.