Some firms have anguished and resolved this issue. I suspect in days gone by, most accounting firms did some audit. Now, many small to medium firms don’t. Why?
I recall Robert Gallagher, a practice consultant from Pittsburgh saying “Audit is the only work for which we have a monopoly, so why give it away”. With other work there are competitors, lawyers, bookkeepers, various consultants, etc., not with auditing.
Then there was the regional practitioner who said, “If I am offered the audit of the local hospital, I can’t turn around and say I can’t or won’t do it”. “They will think I am not competent and not supportive of the community. It will affect the way they judge me for all other possible work.”
Firms drop audit work because
- Partners and staff just don’t like the work
- It is difficult to make money from it
- Clients don’t appreciate the work you do
- It is almost impossible to get new Registered Company Auditors, especially in regional centres
- If a major fraud is discovered, it can lead to awful consequences for the firm
- Clients seem to feel they must put their audits out to tender, then some of the larger firms are very price competitive during tenders
- If anything goes wrong, people start off by suing the auditors, because they have insurance.
What will happen if most firms drop audit?
Audit is critical for Australian business, government and the not for profit sector. Now there are also specialist SMSF auditors, though the registration process is different.
One country practitioner commented, “Apart from two men in their 70’s, I am the only registered company auditor for many miles”. Someone else complained, “There is no resident company auditor in one significant [named] country town”. This is a serious situation, the professional accounting bodies realise it, but are having trouble getting government bodies to understand.
We don’t even know how many audits have to be done in Australia each year! So if only public companies are counted, it does seem there are sufficient auditors. Some firms suggest ASIC would only know about 20% of the audits they complete. Maybe the creation of ACNC will help prove the greater need for auditors?
It is possible to make money out of audit: actions of successful small firm auditors
Clearly some small to medium firms do make money from audit, that is why they have geared up to do it. They have built specialist teams with separate audit partners and audit staff. Some have purchased audit software to ensure compliance and efficiency. Others are able to effectively outsource the set-up of the next year work papers.
Firms assertively negotiate reasonable audit fees, with which they can make a profit.
Partners and staff are trained in delegation, supervision and communication skills, to ensure effective team management. Time is monitored, all work is charged and overruns avoided.
There is strict control on the work to be performed. All staff are coached to identify scope creep. A separate pricing agreement is made, before the additional work is started.
Successful firms quickly identify audits that should be avoided, they can’t be done for a reasonable fee. Saying no is not easy, but necessary for a successful audit practice.
Some audit firms undertake specialist audit within a selected industry. They develop specialist expertise and creditability, thus commanding an effective price for audit.
Education of clients is critical. I recall being very impressed with the regional firm who produced an 11 page document “The Audit Process”. It covered the objectives of the auditor, the need to comply with auditing and accounting standards and the stages of an audit. Every audit, they sat with the client staff and stepped them through the document.
A successful auditor builds rapport with the members of audit committees.
Successful auditors always look for useful information. I recall being very popular with some auditors when I had a US publication which suggested 17 sample questions an audit committee could ask of their external auditor. One auditor said “I will now be ready with answers for the questions, including from a former partner now on the committee”.
Sometimes audit teams may appear to be very isolated. So mixing with fellow practitioners from other small to medium firms can be helpful, especially if they can remind you of useful resources such as the May, 2013 document “Practical Ways to Improve the Exercise and Documentation of Professional Scepticism”. It provides examples of questions to ask and actions to take, so as to enhance and document the exercise of professional scepticism. I have been told ASIC Audit reviewers are checking for evidence of professional scepticism.
One interesting idea from the 2013 ICAA Audit Conference was the concept of “dressing the audit room” when at the clients. A partner from a large firm was talking about plants and posters. I feel large charts with the names and positions of staff on the job, a poster showing the key deadlines applying to the job, lists of areas still to be audited, some clauses from accounting and auditing standards and names of key client staff, could all be useful.
Thea Foster, practice consultant operates her facilitated TAP AUDIT Group meetings in Sydney and Melbourne, providing a forum for partners and managers from smaller audit firms, to meet, learn and support each other. For more information regarding Thea’s TAP Groups visit www.addedvalue.com.au
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