Whatever Happened to the Cookie-Cutter Approach to Audits? | AccountingWEB

Whatever Happened to the Cookie-Cutter Approach to Audits?

It used to be simple, even fun.  We had three types of evidence to choose from on audits: 1) tests of controls, 2) analytical procedures, and 3) detailed tests of balances.  Deciding on an audit approach was easy.  If the client had a good system of internal control, we'd perform tests of controls and reduce the detailed tests of balances.  Inadequate controls meant extensive detaied tests of balances.  When we could perform highly-effective analytical procedures, detailed tests of balances reductions were also possible.  End of planning game.  Get out the audit cookie-cutter and go to work! 

We didn't even have to think much back then.  We just performed all the procedures in the standard audit program and got happy.  Some have referred to this as the "warm-glow" approach to audits!  Maybe you've experienced it.  We performed procedures and collected evidence until our cheeks turned pink and we felt that warm glow all over.  When we finished we were even happier because we could bill the client for all our time charges and blame it on our "professional standards!"  Whatever happened to the cookie cutter!

In the mid-1980's the shape of the cookie cutter began to change with the "expectation gap" auditing standards.  They required us to do things we'd not done before.  We were told to relate risk to materiality and to the nature, extent and timing of procedures.  First off, we didn't know how to do that!  We were comforted, however, because nobody knew how.  A few years passed and we realized that we could just continue approaching audits as we had for centuries and simply use pieces of paper to make it look like we knew what we were doing!  The cookie cutter changed but it still stamped out audits pretty good!

In 2007, the audit risk assessment standards became effective.  Moan and groan!  The cookie cutter won't fit.  Attempts to make new cookie cutters have failed.  Alas, we have to think and reason!  Standard approaches and practice aids from major publshers still work but our clients have realized they don't have to pay for all those procedures anymore.  Some of our clients, even small ones, have realized when they have a good system of internal control (relative to the nature, size and complexity of their entity) their audit fee should go down!  Uh Oh! Now our clients are thinking and reasoning!

You mean I have to know what I'm doing!  Shut up (as my granddaughter would say)!  If you read this blog, chances are you've been preparing for years for this time by restructuring your audit approaches, modifying audit documentation for the uniqueness of engagements, making increasing investments in CPE and on-the-job training and developing your staff personnel.  Most of us have realized there are some changes we can't fight and win.   The resilliance of CPAs is surfacing everywhere.  Instead of laments and negative expenditures of energy, we've sold our cookie cutters on Ebay and figured out how to play the audit game and win!  Stand up and give us a BIG WAVE!  Audits still can be fun!

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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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