I wanted to write some additional thoughts regarding the new auditing standards (see my previous post about the new standards). These new standards will first be effective for entities with a December 31, 2007 year end. The majority of people in the CPA profession are estimating that the new auditing standards could raise fees anywhere from 15% to 30%. I am hopeful that this will not be the case, at least with respect to more sophisticated, well-controlled organizations.
I am not yet an expert on the implementation of the new auditing standards. However, here are my impressions after attending a full day course on the implementation of the new standards, after reading about them, and after attending the CPA Associates International Accounting & Auditing Conference in
The new standards focus on doing a risk assessment before planning the audit work. Then, the audit work that is determined to be needed is “linked” to the risk assessment. For most of my existing clients, I believe I already have a pretty good understanding of the client’s risks. The new standards simply make us put our risk assessment analysis down on paper, which I don’t necessarily see as a big deal. It may be as simple as picking up a recorder and doing a “brain dump” in the form of a memo or similar narrative.
We have talked about “linkage” in the CPA profession for many years, but have always had difficulty actually doing it. Some of the vendors who provide “practice tools” to assist CPAs have developed products I believe will be very helpful in implementing the new standards. For example, Practitioner’s Publishing Company (“PPC”), a leader in providing such products over the years, has a new product called SMART e-practice Aids that will hopefully greatly simplify the “linkage” process. You “check-the-box” with respect to your risk assessments and it produces one of three results for a particular audit area: (1) no audit program – only an analytical review is performed, (2) a limited procedures audit program or (3) an extended procedures audit program. The extended procedures audit program basically looks like the PPC audit programs we have historically used. The use of # 1 and # 2 is where I think auditors will save time and effort because of this approach - - - less work will be required in these two situations.
On larger, more sophisticated entities, I am hopeful that the additional audit time we spend on the “front end” will be offset by less detailed audit work needing to be done on the “back end”. My hope is that the revisions to the audit approach will actually make auditing more interesting by focusing on our client’s business and risks; the same things that concern them. Also, we will only be doing detailed substantive audit procedures in areas where they are really needed (audit program # 3 referred to above). Until I learn differently, my view is that the new standards are going to help rather than hurt in CPA performing effective, efficient audits for these type of organizations.
