But what else can we do to improve our audit quality?
The Institute of Chartered Accountants Australia and New Zealand (ICAANZ) last month wrote an article titled "Modular thinking - the future of audit?". The article leverages off the Brydon Review; a result of the various scandals which have plagued some of the larger accounting firms in the United Kingdom over the last year. You can read Accountancy Age's list of scandals from 2018 here.
Since the Carillon collapse, there have been numerous ideas thrown around. Mixed audits, where both large and mid/small tier firms work together to complete audits, and breaking up the Big 4 entirely, are just some of the ideas being floated. However, last months ICAANZ article, provides a real (and credible) alternative, that could well be worth investigating.
As both a financial statement and internal auditor, I have seen first hand both sides.
For financial statement auditors, short timeframes, unprepared clients, as well as internal budget and resourcing pressures; all place a significant level of stress on all levels of the audit firm, not to mention, the client. Its a busy time for both the auditor and the client, however all parties band together and get the job done.
The approach, discussed by Amir Ghandar, ICAANZ Assurance & Reporting Leader, involves 'modular' auditing. A process whereby the standard 'year end audit' is broken up into modules. More time and effort can then be spent on a particular module, thus allowing for a more detailed review. The approach is permitted by the auditing standards, and something that may help ease the resourcing constraints faced by audit firms during their busy periods. Furthermore, it can also ease the burden on the client.
Of course, a modular approach would not mean procedures performed at year end and now performed, for instance, in January. Audit coverage must be obtained for the entire reporting period. Procedures will still need to be performed at year end, however the work performed during the year can be leveraged.
The modular approach is beneficial for a number of reasons:
It will provide more time for the audit team to perform more detailed procedures and better their understanding of the business's processes;
Clients have more time to prepare for the financial statement audit, with some of the 'heavy lifting' being done throughout the year;
Allows audit firms to provide clients with more insight.and comfort; and
Can help the auditor and business to bridge the expectations gap.
But can financial statement auditors do more to help bridge the expectation gap, and deliver a better quality audit?
Under the auditing standards, reliance can be placed on the work of internal audit (noting that the financial statement auditor must still perform some of their own procedures). Additionally, the financial statement auditor cannot direct the work of the internal auditor, however I believe that the two parties can work together substantially more to provide better assurance to the business. Internal Auditors should actively engage with the financial statement auditors at the completion of key reviews (i.e. finance, people, and IT). This will provide the financial statement auditor with more time to assess the work of internal audit, and if desired, place reliance on the final report and perform their own procedures. In turn, this can allow the financial statement auditor to better focus their attention on other audit risks, or items for a more detailed modular review.
Through both a modular review and increased communication with the internal audit team, the financial statement auditor is able to gain a more detailed understanding of the business. In turn, this can potentially provide a more targeted and detailed review, benefiting the business, investors and relationship between all parties.
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