I attended a PPC seminar in September 2007 on implementing the then new auditing standards. One of the highlights for me was a session led by, if my memory is correct, Harold Monk, the chair of the Auditing Standards Board. The part that really stuck with me was when he said something to like the following:
<i>Our goal is that every company that has an audit of their financial statements will use two CPA Firms - one to help them with their year-end close, and the second to do the independent audit.</i>
I understand their logic. I just don't agree with it. Did they think about asking the ultimate purchasers of an audit, namely the business entities, if they wanted this?
We do a lot of audits - primarily SEC audits but also a good number of audits of privately held entities. I can assure you the privately held companies were not overly excited to hear this. To their minds, two CPA Firms =a needless increase in fees.
I can't argue with them. Prior to these changes in the standards, one firm could generally help with the closing and drafting the financial statements, including the notes. Let's be realistic - there aren't many small businesses that can do this themselves. They may have a very good controller with a good knowledge of GAAP, but maybe they left public accounting and don't want to stay on top of the continuing changes in accounting standards (another sore point with me but that can wait for another day). So the auditor did the adjustments on some complex accounts and drafted the statements and notes.
The Auditing Standards Board decides this can't continue. Again, I understand their logic - the auditor shouldn't be a part of an entities system of internal controls.
But it just isn't likely that two CPA firms will do this for the same amount of fees. And how does this help the business entity? I still just don't get it.
There are times an audit client will ask us to adjust something like deferred taxes for them. We have to tell them to try and do so themselves. Then we audit it and fix it. This is just plain inefficient for the audit client. They waste time doing something they can't do. We have to post an adjustment that says something like "To correct error in deferred taxes" where in the past we'd have said something like "To adjust deferred taxes to actual." Do you think the client likes seeing "To correct error"? I can assure you some get irritated and don't like hearing "that is what the standards require."
All of these standards lead to a tremendous amount of checklists that need to be prepared. I have a small franchisor that I audit. It literally takes me under 30 minutes to test 100% of the transactions. The required checklists - at least 6 hours. This doesn't make sense.
I'm hoping some sanity comes in this area. Of course, if and when it does, I'm going to have to redo all of my audit documentation once again.
It just doesn't end, does it?