Wednesday, July 1, 2015

Audit response to significant risk identifed for audit engagement

In any audit engagement - it is mandatory to identify significant risk that is unique to individual engagement as required by international standard of auditing. The significant risk identified requires auditors' special consideration in designing and executing the audit procedures.

For instance, for active company, the auditor may concern that the revenue might not be recorded in appropriate period as there might be incentive for management to overstate the revenue. Given that the oil price is at low end cycle, there might be risk that the oil & gas audit client may understate their provision for any onerous contract.

In short, it is important to develop a robust understanding of the audit client (including: business environment, compensation package of management, etc) to identify significant risk.

When a matter is identified as significant risk - auditors need to design audit response that requires special consideration - i.e. carry more audit procedures for certain accounts to response to the fraud risk. For instance, carry out detailed analytical review for revenue account to identify any unusual transactions.

If impairment of property, plant and equipment is identified as significant risk (most likely there's indication of impairment), auditor need to examine the cash flow analysis of the Company carefully to evaluate the reasonableness of the cash flow analysis prepared by management to support the carrying amount of property, plant and equipment.

Significant - then do something different.

Audit manager - having lunch or dinner with client

Over the years, the auditors of realized that auditing is essentially a service industry. It's important to manage client's expectation whilst ensuring that the financial statement is not materially stated from the prevalent accounting standard. Works got easier and smooth, when both auditor and audit client move in the same direction and are on good term.

As such, it is important to develop or forge strong client relationship with the audit client. We realized that it's a lot easier to forge relationship over lunch, instead of formal face-to-face meeting. We are not discouraging of having formal meeting. However, we are encouraging to have informal lunch with client - in a lunch set-up, where both the auditor and audit client can talk about personal matter, instead of accounting and auditing matters.

Audit fee discussion got a lot easier when both parties are on the same good term.

Hence, the auditors in always ensure that at least a lunch is being organized for each audit client. This is part of client relationship management that worth investing your time and some money.

What is your thought - hope to hear from other auditors within the world. How do you forge stronger client relationship?

Wednesday, June 24, 2015

Discipline is needed for the auditors, especially audit manager, who is manaing portfolio of client

Throughout the years, with the progress and promotion in the audit career - from audit staff to audit senior to audit manager... - we realized that being discipline is important for an audit manager to manage its portfolio of clients.

Depending on the workload, an audit manager may assigned to manage at least 10 client groups and there are managers who are managing more than 50 client groups, where the size of each client groups varies. It's important to be discipline to plan the audit, execute the audit, review the audit working papers, resolve the accounting issues and close the audit immediately.

Procrastinating, which is a no-no habit in life, would result in delay in audit, overtime hours to be incurred by audit team and audit manager himself/herself. If the audit manager don't carry out his/ her work diligently in a discipline manner. Audit progress may goes beyond the audit team's control - for instance, delay in review by audit manager would causes the client to miss its filing dateline. There will be spill over effect for other audit engagements that are on-going on the same period.

In life, it's important to plan, to execute and be discipline and diligent.

Saturday, May 23, 2015

Auditors' are not infallible - Article from The Edge -

We came across this article in The Edge with the title of Auditors, like anyone else, are not infallible:

What the article said is quite true - where the auditors can't guarantee everything within the company is "all right" even though a clean unqualified audit opinion has been issued. However, the market perception seems to be like the company "is ok" since it has been audited and clean audit opinion has been issued?

WHat can be done to change this market perception ?