Increasing Audit Profits Series No. 2--Thinking Less Instead of More

A good auditor lives life with a questioning attitude.  We are analytical thinkers. We like to be well-organized and we like to make lists!  We often operate with a “If it isn’t broke, don’t fix it attitude” since we don’t like change. Out of necessity, most of us are very conservative people.  When we make decisions, we like to have more information than is necessary to prevent making mistakes.  We will even sacrifice audit profits to experience that “warm-glow” feeling during audit completion!

Don’t get me wrong!  These characteristics are not bad.  To increase audit profits, however, they must be “tweaked” a little. Here are a few ways:

•    Recognize that maximum substantive tests are not always necessary.  A CPA firm partner in one of my live seminars once proudly shared his firm always performs maximum substantive tests to maximize quality, even when a client has a good internal system.  Like it or not, this is called “over-auditing!”
•    Consider that one-size-fits-all practice aids may not be appropriate for every engagement, particularly for small audits.  Some auditors perform the same procedures in the same way for every audit.  This is not professional judgment and is a violation of the auditing standards!
•    Remember that the results of risk assessment procedures drive materiality levels, materiality levels drive the nature, extent and timing of audit procedures and audit procedures drive the audit evidence and its documentation.  Assuming risk is always high takes a huge bite out of audit profits.
•    Identify the minimum procedures necessary to obtain reasonable assurance the reporting entity’s financial statements are presented in accordance with the applicable reporting framework.  Reading the general ledger and following up on unusual items and performing a systems walk-through procedure may be all that is necessary to reduce the assessed level of risk of material misstatement (RMM) to some level less than high.  Assessing RMM less than high, even slightly less than high, can result in yearend substantive test reductions and profit increases!
•    Depart from tradition!  Make some changes! Incur a little “educated” risk and take advantage of the provisions in the auditing standards that enable auditors to gather lesser amounts of evidence.

Increasing audit profits is not making changes for change’s sake.  It is holistic decision making considering firm quality control policies and procedures, the requirements of applicable auditing standards and the CPA firm’s operating philosophies and policies designed specifically to met the needs of it clients.  The result is less audit work and increased profits!

If you want to dig deeper into some of these areas, make sure you check this blog weekly as we explore many time-saving opportunities.  The home page of my website, www.cpafirmsupport.com, contains links to my live and on demand webcasts and small book products on these and other topics.  My Small Audits Series, for example, contains 15 small books, related illustrative practice aids and PowerPoint slides that focus on collecting the minimum amounts of evidence to maximize engagement profits.  I encourage you to join me in thinking less instead of more!

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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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