Increasing Audit Profits Series No. 22—Counting the Costs of “Catch-up” Audit Planning (Part I)

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In my previous blog, I discussed the benefits of performing audit planning activities at their most appropriate times.  This writing will focus on some the bad news of not performing all planning activities prior to the yearend fieldwork.

Skipping the Pre-engagement Planning Meeting—In-Charge Accountant and Engagement Leader

The purpose of this meeting is to formulate tentative plans for an audit.  Information the engagement leader may communicate includes:

•    Changes in the client’s business operations, accounting systems and internal control.
•    Modifications of the prior year’s audit strategy to increase efficiency.
•    Suggestions for modifying the prior year’s procedures and documentation to save time.
•    Staffing and on-the-job training suggestions.
•    Administrative details such as timing, budgets and billing arrangements.

When this initial meeting is not held, the time-wasting possibilities are endless.  The in-charge is often told to obtain last year’s working papers, perform the same procedures and prepare the same documentation (SALY method).  While this may appear to save a leader’s time, some current issues and problems relating to the audit aren’t discussed, or even discovered, until a leader’s final engagement review.  Further, the SALY method occasionally becomes the MILY (missed it last year) method!

Client Acceptance and Continuance Evaluations

Here’s the simple bottom line: quality clients contribute to quality engagements.  Less than quality clients generate more headaches than they will pay for!  The minimum cost is the write off of time charges spent getting the client’s records in shape, overcoming their objections to required engagement procedures and answering their endless phone calls and emails about picayune issues. Worse, these are the clients that will damage our reputations with their words or sue us when we or they make a mistake!

Understanding Client’s Business and Environment

Many of us have been taught stereo-types of small entities.  Some of those are that small entities don’t have sufficient personnel to adequately segregate duties, personnel are generally limited in their qualifications and capabilities and  owners and managers rarely have administrative or accounting skills, to name a few.  Unfortunately, these stereotypes are true in some cases!  On the other hand, more times than not the opposite is true.

Assuming these stereotypes will always be true for all small business clients can affect a CPA firm’s audit profitability in several ways.  Here are a few:

•    The firm may miss an opportunity to make suggestions to improve internal control and to enable the client to overcome recurring weaknesses in their financial reporting.  
•    Documentation of the CPA firm’s understanding of the client’s business and its environment may be incomplete and inadequate as staff personnel have an increased tendency to carry the documentation forward without sufficient review and change.  Accounting and reporting issues may not be discovered until year-end procedures are performed.
•    The audit strategy will generally include extensive tests of balances procedures performed and reviewed during year-end fieldwork.  Opportunities for less costly risk assessment procedures and analytical procedures may be overlooked.

Not only is it likely the audit team is performing more year-end substantive work than may be necessary, failure to obtain or update the client understanding early often pushes problem recognition and resolution into the engagement wrap-up phase.

You can obtain more information about the positive results of proper planning from my live or on-demand webcast entitled Eliminating Wasted Time During Engagement Wrap-up.  Syllabuses for this and other webcasts can be obtained by clicking the applicable box on the left side of my home page,


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