Can Creating Alternative Small Audit Documentation Be Cost-Beneficial?

For decades it has primarily been the larger firms that created proprietary audit documentation. Most small to medium-size firms have purchased canned practice aids and, generally, have used all the forms, checklists and programs on every engagement.  Because these practice aids are designed as one-size-fits-all documentation, their use on small audits can produce quality engagements but, without significant modification, they contribute little to increasing engagement profits.

Why then do so many firms continue performing unnecessary procedures on small audits using canned practice aids?  Here are some possible reasons we resist modifying small audit documentation and a few of my thoughts about how we can make change pay:

1. We don’t know what else to do!  Some of us may recognize the need to change but we don’t know how to change.

If we don’t know how to change and we want to become more efficient on small audits, then we should find someone that knows how!  Even if we have to pay a consultant, this investment in small audit efficiency will pay out quickly!

2. If we think what we are doing isn’t broken then we reason it doesn’t need to be fixed!  After all, change costs money!

Our audit approaches may be broken and we don’t know it!  If we are collecting too much evidence, we are over auditing.  The cost of over auditing takes a huge bite out of profits!

3. In smaller firms we don’t have the personnel or the time necessary to create proprietary documentation.

If we don’t have time to create proprietary small audit documentation, then we need to either make time or hire someone to perform this task for us.  Tailoring small audit documentation will create engagement efficiencies that will make time for serving more clients and increase revenues in the long run.

4. Our conservative nature causes us to avoid as much risk as possible and to lean towards more evidence, instead of less, even if it costs us money!

Auditors will always be exposed to business risks, namely lawsuits.  An auditor’s defense is, first, complying with the requirements of auditing standards and, second, exercising professional judgment in every engagement’s circumstances.  Collecting evidence beyond what the standards require is not professional judgment and does not decrease risk!

5. We may have been taught small audits are always high risk and, therefore, no reductions in auditing procedures are possible.

It is a myth that the risks of misstatements on small audits are always high!  The auditing standards make it clear that risk assessment procedures may result in assessing risk less than high, even on small audits!  When risk is less than high, auditing procedures and related documentation can be reduced!

The truth is that anxiety over modifying small audit documentation is worse than reality!  If some of these reasons stand in the way of increasing profits on your firm’s small audits, then you can make more money by eliminating the obstacles!

In future blogs, I’ll discuss opportunities to design and use alternative documentation for small audits.  If you are interested in making more money on small audits, you may wish to register for my Small Audit Series of live webcasts which begin on October 26, 2010.  You can download a syllabus and register for any or all of the 15, two-hour webcasts at www.cpafirmsupport.com by clicking on “Larry Perry Live Webcast Schedule.”

This blog

by Larry Perry, CPA, CPA Firm Support Services, LLC - Larry has over 40 years experience as a CPA practitioner, author of accounting and auditing manuals, author and presenter of live staff training seminars and author of webcast and self-study CPE programs.  He is co-founder of CPA Firm Support Services, LLC (www.cpafirmsupport.com), an organization providing resources, training and consulting to smaller CPA firms.  Larry writes a weekly blog on AccountingWEB.com focusing on small audits, reviews and compilations.  He is currently developing documentation manuals and handbooks for small audits, reviews and compilations and related electronic practice aids.

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