Focus on relevance
Audit quality and efficiency are not mutually exclusive on smaller entity audits, as Christiana Diola and John Selwood explain
There is a common misconception that improving audit quality costs money without any improvement to efficiency, and auditors can only become more profitable by cutting costs. However, with appropriate investment in audit, quality can drive efficiency.
But how can audit firms perform high-quality, focused, proportionate, smaller entity audits that comply with International Standards on Auditing (ISAs) and make money on them? Four elements are critical:
Tailoring each audit
The ISAs are scalable to smaller audits. Many ISA requirements do not apply to smaller and less complex audits. With the right upfront investment, auditors can boost audit efficiency and ensure that they carry out only the necessary audit work to reach an audit opinion having:
- only followed those ISAs and ISA requirements that are relevant; and
- identified the significant risks, and responded appropriately by collecting sufficient appropriate audit evidence.
Some auditors struggle to scale the ISAs because they do not invest in individual audits. They do not tailor the audit approach, in a misguided attempt at containing costs. This nearly always results in unnecessary work in less critical areas, insufficient work in critical areas, and some critical areas missed altogether. This is neither efficient nor effective and can be counter-productive, with more costs rather than less, when remedial work is needed.
This is an extract from an article in the April 2015 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.
Find out more
Members of the Audit and Assurance Faculty and subscribers of Faculties Online, or International Accounting, Auditing & Ethics (IAAE)
To read the complete article, subscribe to Faculties Online or join the Audit and Assurance Faculty and get access to this article in full, plus all future publications, events, webinars and services.