Brought to book

Brought to book

A new edition of the English ICA booklet Towards Better Auditing hasjust been published. Richard Bint explains why it was important to updateit

Three years ago the forerunner of the English ICA’s Audit Faculty produced a Towards Better Auditing, an invaluable guide to auditing firms of all sizes.

The faculty aimed to produce a concise booklet of practical guidance dealing not with how to do an audit but with how both firms and individual assignments should be organised and managed to maximise the effectiveness of the audit work.

It was based unashamedly on the current best practices of leading firms of all sizes.

Auditing does not stand still and the faculty has just updated TBA to take account of: changes in the way firms organise and manage themselves and their audits; of the concerns currently pervading the profession; and of developments in regulations.

While the concept of TBA has stayed the same, a change of title to Better Auditing was considered to signify the profession had ceased to move ‘towards’ its goal and had somehow arrived at the definitive standard. In reality, auditing is always developing and the profession always striving to improve and so Towards Better Auditing is likely to be the booklet’s title for some time to come!

An audit has to be a quality product and TBA aims to help firms to ensure their product is of the highest quality. For years, published material has concentrated on ‘how-to-do’ auditing methodology and techniques. Methodologies have gone through several metamorphoses. Far less has been published on the other main factors which ultimately determine the quality of the end product. Those are the organisation and management of the audit firm; and how individual audit assignments are managed.

These constitute the context within which a firm’s audit methodologies operate and if they are deficient then, however good the laid down procedures, there is a serious risk they will be ineffective.

Audit quality

What does effective organisation and management mean if it is to impact on the quality of the audits it performs? It does this by: ensuring that people doing audits have the right skills and attributes for the job they are asked to do; recognising that giving an audit opinion inevitably involves taking some risk but reducing that risk to the minimum possible; ensuring that good work on audits is not undermined by poor administration within the firm in such apparently mundane areas as incoming post, filing, typing of accounts, tracking work against deadlines etc; and by implementing an effective system of quality management.

One area on which the most progressive firms have focused a lot of attention over the past three years is the development of people and the revised TBA reflects this focus by allocating a new chapter to this subject.

This changing emphasis is in recognition of the fact that, no matter how good a firm’s auditing procedures, if those carrying out the work are of an inadequate standard, not properly trained or simply given tasks beyond their experience, then the audit will not be of the required quality. This means firms of all sizes must recognize the importance of basic requirements such as job descriptions, recruitment, induction to the firm, assessment, advancement, staff allocations and training – for partners as well as staff.

In addition, the new TBA reflects the increasing attention paid by firms to developing the personal qualities required by an auditor. Many corporate failures of recent years have reinforced the paramount importance of auditors maintaining an independent state of mind; remaining robust in the face of external pressures; and maintaining diligence in the execution of audit work at all times.

Practitioners dealing with smaller audits have arguably always had to recognise the importance of these attributes.

While firms are still not permitted to limit their liability in respect of statutory audits, the past few years have seen firms seeking to put a ceiling on risk exposures in as many other respects as possible. The revised booklet recognises the need to put into place the procedures to prevent inadvertent acceptance of commercial risk without reward – for instance, giving unrestricted access to working papers or giving oral representations to third parties.

One new chapter in the section on management of individual audits is entitled Could there be a Fraud?. This reflects the determination of the Audit Faculty and the auditing profession generally to play an active role in combating fraud. Guidance is given to encourage auditors to be vigilant for the tell-tale signs and to spend time assessing the potential for fraud in each audit before commencing work.

Should indications of possible fraud be identified it is important to follow the practical guidance given in TBA for preserving evidence in a way to facilitate its use in a court of law. Auditors should take note of this.

Chapters on individual assignments focus on matters increasingly important to auditors since the first edition three years ago. They deal with the acceptance of new clients and the annual consideration as to whether to retain a client or not.

Lawbreakers

While the decision as to whether to keep the majority of clients may be easy, it is increasingly important that auditors do not automatically continue to act for those who transgress the law, have been proved to have a fundamental disregard for the proper presentation of their accounts, or have been untruthful or misled auditors in the past.

Similarly, commercial factors such as the profitability of the work or the potential for a bad debt are legitimate considerations in deciding whether to retain clients.

TBA is written throughout so that virtually all its guidance is relevant and useful to smaller firms as well as medium-sized and larger ones. The special considerations relating to sole practitioners are also dealt with where appropriate. In view of this, and the importance of the messages given, the Audit Faculty has organised a nationwide series of roadshows of a practical nature based on the material contained in the booklet.

For information contact the Audit Faculty’s secretariat on 0171-920 8526.

The booklet itself is being widely distributed and will repay a comparison with any firm’s existing organisation and procedures with those set out in the guidance.

Richard Bint was Chairman of the Audit Faculty working party updating the Towards Better Auditing and is a partner in Pannell Kerr Forster.

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