Audit Huddles as a Tool to Control Over-And Under-Auditing Tendencies: Part One of Two
Hayes, Arthur, The Journal of Government Financial Management
All auditors and audit organizations struggle with the question of whether they are over- or under-auditing. In this regard, overauditing refers to efficiency-are we doing more than we need to do and wasting our resources? On the other hand, under-auditing relates to matters of effectiveness-are we failing to meet our audit objectives? Implicit in every step of an audit is the question of just how the audit organization should deploy its scarce resources to give optimal audit coverage and how each auditor should exercise his or her professional judgment to get the most out of their individual efforts.
By its nature, auditing does not lend itself to great precision when it comes to being totally efficient, in the sense of avoiding any work that is repetitive or redundant All financial statement auditors are seeking evidence to determine whether the financial statements of the entity are fairly presented. This necessarily involves some retracing of the transactions of the entity and redoing some calculations. But auditors are also stepping outside the routine to look for "trouble" during the audit And in government audits, their tolerance for problems, either in the form of noncompliance with rules, laws, regulations or policies, or in the form of fraud, waste or abuse, should be less than in non-government audits, consistent with government auditing standards. Adding to the novelty of audits is that auditors usually do not know exactly where the problems are when they begin an engagement Audits are required for that very reason, to determine what isn't already known to third parties interested in the operations of the audited entity.
Auditors try to refine their search for problems through planning efforts, including following up on prior audit findings and otherwise building on previous audit work with that client or similar clients.
The first standard of auditing fieldwork recognizes this inherent struggle to effectively and efficiently use audit resources, by requiring the auditor to adequately plan the audit and to appropriately supervise any staff assigned to the engagement Of course audits are complex undertakings, involving the exercise of professional judgment at every stage of the engagement So there is a lot of room for differing opinions on what the scope of any particular audit procedure should be.
One of the most precious commodities the auditor has is time. It is the unyielding pressure of time that makes auditing such a demanding profession. When asked what keeps them from finding fraud, many auditors respond that it is the limitation of time coupled with the many things that they have to look at and consider.
These time pressures are heightened every time new standards are issued. The auditors' plates keep getting filled with requirements, while the time to perform the audit is probably not expanding. The AlCPA's Audit Risk Alert for the new auditing standards related to risk assessment notes that the new standards create significant new requirements for auditors. Furthermore, the alert states that "in most cases, implementation of the SASs will result in an overall increased work effort by the audit team. It is anticipated that to implement the SASs appropriately, many firms will have to make significant revisions to their audit methodologies and train their personnel accordingly. To ease the implementation process, it is recommended that firms adopt at least some of the provisions of the standards in advance of the required implementation date."
(As noted in a previous article, one early area of implementation might be the huddle requirements of SAS109.)
This additional work will most likely translate into higher audit fees for clients, if the firm can staff up to meet the new demands.
Unfortunately, for many government auditors, they cannot assimilate the new requirements by just doing more work, probably with more staff, and billing the client for more hours-their staff size and/or their budgets are pretty well set in stone. …