Efficient Tests of Balances Series--No. 3: Understanding Audit Assignments
On my first day as a staff assistant for a local CPA firm, a partner asked me to accompany him on the first day of audit fieldwork for a small client. Upon arrival, the partner directed me to a conference room as he gathered bank statements, a general ledger and supporting journals. Depositing the records in front of me and walking out the door, he directed me to do a “proof of cash for the year.” When he returned several hours later, I was still searching the records for that proof of cash! Yes, I’d passed Auditing 101 in college, but I had no idea what I was supposed to do!
Many accountants remember the pain of their early years working for a CPA firm. For most entry-level accountants, many days were spent inspecting purchases or sales documents, footing client records and schedules and performing endless account analysis, to name a few of the more exciting assignments! While it was sometimes hard to stay alert and awake while performing these tasks, most accountants recognize these first assignments as the foundation of an effective and efficient audit.
Effective in-charge accountants and engagement leaders recognize the importance of on-the-job training, particularly during the planning phase of an engagement. Like any other resource, staff personnel require an investment of time and dollars to produce a profit. Effective staff development cannot occur on a hit or miss basis. It requires a structured introduction of skills corresponding with personnel needs at various levels, on-the-job application of the new skills, immediate appraisal of the results and regular counseling for long-range growth. Staff personnel will develop and grow in proportion to the effectiveness of their leadership, and so will a CPA firm!
Pre-engagement OJT activities:
On-the-job training begins with the assignment of staff personnel to the engagement. The staff person's capabilities should first be considered in relation to the size, complexity and anticipated work assignments of the engagement. As discussed in SQCS No. 7 and SAS No. 107, audit responses to risks of material misstatements at the financial statement level include either assigning an appropriately experienced person or providing more supervision for inexperienced persons. Once assigned to the engagement, the staff person should be utilized to take best advantage of previous work experience and, at the same time, to allow opportunities for working in areas new to the staff person.
A pre-engagement planning meeting is required by the risk assessment standards. Attended by all engagement personnel, this meeting should also serve to familiarize staff persons with the client and with their audit responsibilities. A tour of the client's facilities to meet key personnel and observe operations should be scheduled either before or after this meeting to further orient staff personnel.
These preparatory activities set the stage for effective and efficient performance of audit assignments. In future blogs, I’ll discuss how to effectively and efficiently audit material financial statement classifications.
My Basic Staff Training Series and my Entry-Level Training Series of live and on-demand webcasts address these and other practical audit issues. You can download syllabuses and register by clicking on the applicable box on the left side of my home page at www.cpafirmsupport.com.