Don't fall at the final fence. More haste, less speed. To fail to plan is to plan to fail. when it comes to audit completion, there are almost as many apposite idioms as there are relevant international standards, so why is audit completion such a stickler?
Firstly, we often underestimate its complexity and so don't allocate a sufficient thought, time and resource. Secondly, it is a mix of project management and technical input, and as auditors we tend to focus on the latter.
Not planning adequately for completion can have some unpleasant and unwanted consequences. It can turn the audit into a frustrating and demotivating experience for all concerned, particularly the audit senior. It can also lead to an unhappy client, and can have a negative impact on quality and profitability.
One of the keys to successful completion is to plan for it right from the start of the audit and for someone to hold responsibility for driving the completion process. It should be as much a part of the audit planning as the risk assessment. There will always be times when the unforeseen arises, but if we have planned for what we can foresee then we are in a much better position to cope with the unexpected.
During planning we should:
- make sure the audit senior knows they are responsible for completion of the file;
- agree a completion timetable with the client and the audit team;
- examine what has caused past problems with the client at the completion stage and what has worked well; and,
- establish what deliverables the client expects us to provide.
Once we have gone through our risk assessment we will have a much better idea of the issues that may cause delays at the completion stage. For example, these may include financial reporting issues, audit of complex estimates and going concern issues.
The onus here is on the audit senior and their project management and communication skills. They need to keep certain things in mind during the fieldwork, such as the need to:
- communicate key issues to the manager (and partner) as they arise, not wait until the end of the audit;
- chase the client early on for the schedules and information they have agreed to provide;
- prepare the "Points for partner" and
- "Report to management" as the fieldwork progresses;
- review the work of the audit team as they complete it;
- encourage the partner and manager to review on site; and,
- ensure that the file is as complete as possible before coming off-site.
Too often these things are left until the end of the audit and so completion becomes a bottleneck and delays occur.
Focus on Standards
Significant audit effort may be required by relevant ISAs, depending on the circumstances of the particular audit, but planning for this work from the outset will ease the burden at the completion stage. A number of ISAs can have a direct or indirect impact:
Accounting Estimates (ISA 540)
The audit of estimates can pose a number of potential problems for the auditor and we need to be alert to these throughout the audit:
- Auditing complex estimates can be a time-consuming process. The earlier we start the process the better if we are to avoid delays at the end of the audit.
- Management can easily manipulate estimates through minor changes in the underlying assumptions.
- It is not unknown for management that don’t want the auditor to look too closely at the estimates to delay their production until the very end of the audit, in the hope that time pressures will deter the auditor from examining them in detail.
So while ISA 540 is not directly related to completion, for the reasons above it can have a significant impact on completion.
Subsequent Events (ISA 560)
Common findings from file reviews in this area are:
- not updating the review to the date of the audit report, particularly when there has been a delay in signing it; and,
- not documenting the work that has been done regarding subsequent events.
Going Concern (ISA 570)
Audit work on going concern should not be left until completion of the audit. If the client hasn’t made an assessment this can lead to significant delays. Therefore the audit team should include the schedules supporting management’s judgement about going concern in the "prepared by client" list.
If there are significant issues regarding going concern then the client will need to work to address them, and time will be needed to audit this work. Often this will necessitate profit and cashflow forecasts which take time both to produce and audit.
Many small owner-managed businesses may not have done formal assessments on the going concern assumption. In these situations, we must still discuss with management whether events or conditions exist that may cast significant doubt on the entity’s ability to continue as a going concern. With such entities, cashflow forecasts and budgets may not be available, or necessary, as other sources of evidence may well be adequate. For example, an entity may have a history of profitable operations or have readily available access to financial resources.
When we have formed our conclusion, including in this last situation, we need to ensure the basis for it is fully documented.
Written Representations (ISA 580)
Although written representations yield necessary audit evidence, they do not solely give sufficient evidence about the matters they deal with. The auditor needs to consider the reliability of representations. For example, are they consistent with other evidence? Are there concerns about the integrity or competence of those making representations?
The written representation should be in the form of a representation letter from those responsible for the preparation of the financial statements and this should be addressed to the auditor. The date of the written representations shall be as near as practicable to, but not after, the date of the auditor’s report.
ISA 580 includes in Appendix 1 a useful list of other ISAs containing requirements for written representation.
In addition, the following ISAs are relevant to reporting to management and we need to keep their requirements in mind as the audit progresses:
- 260 – Communication with those Charged with Governance
- 265 – Communicating Deficiencies in Internal Control
- 700 series (700-799) – Audit Conclusions and Reporting
Agreeing a timetable with the client is important, as it gives a date for everyone (client and audit team) to work towards. Without this incentive, momentum can be lost and there is a danger that the audit file is "parked" in the office. The audit team moves on to other jobs, memories fade, issues and discussions remain unsolved and undocumented and inefficiency creeps in. If somebody takes responsibility for completion, they can drive the process to ensure:
appropriate staff are available;
- timely communication with the client;
- outstanding issues are dealt with quickly and decisively; and,
- efficient production of the financial statements and other deliverables.
Don’t forget the human aspect of the audit. Timely post-audit staff appraisals and a brief audit review meeting can bring many benefits including:
- making sure we know what went well and what didn’t;
- an opportunity for coaching and feedback – what have staff learnt on this assignment and how did they perform? Timely feedback is more meaningful, accurate and relevant; and,
- a chance for staff to ask questions.
By reviewing our performance, we can:
- improve audit quality as the learning points are applied to future audits;
- foster a better client relationship;
- have more motivated staff with improved professional development in the firm; and,
- improve profitability.
Create a Virtuous Circle
When planning ahead think to the next audit. Completion doesn’t end with the signing of the audit report, it continues until the audit file is archived. By ensuring the file is properly closed down we can achieve a flying start to next year’s audit as no time will be wasted agreeing the opening balances, working out what adjustments were put through, or generally tidying up the previous year’s audit file.