Common Auditing Screw-ups
A new survey collects Big Four auditors' honest
appraisals of their clients' shortcomings.
When queried
the partners at the Big Four firms across Europe
for their honest appraisal of their clients' biggest shortcomings. Fix
these problems, auditors say, and audits will go more smoothly,
relationships with auditors will improve and, possibly, fees will fall.
The best comments are below. Which apply to you and your
company?
Time trials
"Setting unrealistic deadlines (e.g., setting the preliminary announcement
date unrealistically early), which means that client companies do not
allow themselves sufficient time to review information before it is
presented to the auditors for audit."
"Being too optimistic about financial results and communicating these too
early."
"Insisting on tight deadlines but being late in preparing for the
audit."
"Not keeping to the timetableparticularly around the preparation of the
glossy financial statements."
"Late and numerous adjustments to the preliminary announcement by
non-finance individuals."
"Unscheduled absences of key client
personnel, both in the accounting department and other
functions."
Broken
relationships
"Not involving the auditors
upfront when planning changes to the business."
"Lack of internal
co-ordination in the relation with the client."
"Assume that the
auditor can work in a vacuum; the best results are achieved by working
together."
"Not dealing with our request list."
"Auditors are
left to pick up the pieces to make sure that deadlines are met, so the
focus on process rather than the quality of
service."
Governance
gaps
"Overly complex corporate structures."
"Not keeping the legal structure in line with the management structure,
either by flattening the legal or by seeing that the current management
structure still 'owns' the legal."
"Lack of involvement of the board
of directors in the communication with auditors."
"Lack of senior
management sponsorship of the importance of audit 'tone from the
top.'"
"Delegating the audit relationship too far down the
company."
"No one at the client is really responsible for an
efficient annual audit."
"Not achieving full 'buy-in' from the
finance function around the group to deliver the company's side of the
bargain. It takes two to tango!"
Communication
breakdowns
"Closing the accounts before discussing
potentially contentious issues with their auditors."
"Not telling the
auditors when they are encountering difficulties in delivering information
to us so that we can respond accordingly."
"Making claims of
improvements in processes or controls that turn out to be
inaccurate."
Process problems
"Not having a functioning 'hard close' process with all
issues identified at that time being actively addressed at year end."
"Rotation of scope from year to year - i.e. year 1 limited review, year 2
full scope audit, year 3 limited review, etc."
"Not resolving
accounting issues centrally, with the primary team and then distributing
the results with adequate support for conclusions reached. This leads to a
number of local teams running their own crusades, delaying the
process."
"Poor controls and/or lots of different systems lead to
duplication of effort with no real upside."
"So much focus is only
placed the consolidated group accounts that the local reporting is barely
an afterthought, [despite the fact that this] is the place we usually have
the most problems."
Poor
preparation
"Lack of internal review prior to audit."
"Not
documenting/evidencing controls in a manner that is 'auditable.'"
"Poor audit trails and documentation of key accounting decisions."
"Not enough research is done/documented around the significant judgements
that have been made in the group financial statements."
"Improperly
document the 'thought process' in arriving at certain estimates/judgements
inherent in the preparation of the financial statements and the
sensitivity to alternative options/accounting choices."
"Not
providing us well thought-out documentation as to management's
conclusions. These don't need to be set in stone but at least provide a
basis to have quality discussions. We can't audit by 'interview.'"
"Underinvestment in high-quality technical accounting expertise. The
result is that issues are either not identified at all or are identified
too late, and are not properly documented with high-quality technical
analysis and solutions."
Value judgements
"[Clients] only focus on low fees and not the
deliverables."
"Believing that an audit is a commodity."
"Penny-pinching on auditor logisticseg audit space, IT links,
etc."
Lack of
awareness
"Not enough knowledge on subjects that
influence their financial statements and therefore not enough discussions
(internally and with the auditor) on timely basis to discuss these
items."
"Underestimating the effect of new regulation/new IFRS."
"Fail to recognise the sheer scale of effort required to deal with
regulation cross borders."
"Not stepping back to look at the
reasonableness of the numbers."
Source : The Auditing
Practice
