Save Time, Avoid Mistakes with Careful Planning Regarding Calendar Year-End Audits
Organized collaboration. Accurate results. An expedited time frame. Do these terms describe your last busy season?
If they don’t, poor audit planning may have been the culprit. Increasingly, we at Collemi Consulting & Advisory Services, LLC find that we’re coaching our CPA clients to invest more time upfront on planning for end-of-year audit clients.
Proper planning is an investment in time that will surely pay dividends in later phases of the engagement. One big reason: Identifying potential problem areas at the start could save time later. Engagement teams can plan their audits in a manner that helps them focus squarely on the high-risk areas upfront and less on relevant areas of low risk.
Here’s another reason to allot more time to planning up front: It can help auditors identify high-risk elements on a timely basis, which can save a considerable amount of time over the audit period. For instance, auditors might discover up front additional documents they’ll need to justify a specific transaction, and they can ask their clients to arrange for the documents to be produced expeditiously to avoid delays.
So, how much time should engagement teams spend planning for their calendar year-end audits?
A general rule of thumb is to budget about 20 percent of your time on advance planning. So, if you think you’ll spend roughly 100 hours on this year’s audit, build in about 20 of those hours to sit down with your engagement team members and think through how you’re going to tackle it.
Here are some key areas to consider as you develop your audit plan: Focus on risk assessment early in the process (AU-C §315):
Too often, auditors use a “same as last year” (a.k.a. SALY) approach to audit planning, but that’s a dangerous strategy: It doesn’t consider current conditions and increases the likelihood of errors. A solid risk assessment process includes the following components:
- Assessing prior experience with the audit client and audit procedures performed in prior audits
- Facilitating discussions among the audit engagement team members
- Developing an understanding of the audit client
- Identifying the risk of material misstatement due to fraud or error
- Identifying the accounting processes and key controls
- Assessing the risk of material misstatement identified as high, moderate or low
Take your time on this: Pinpointing areas of greatest risk at the onset of an audit allows for additional analysis, reducing the likelihood of error that may result in a professional liability claim.
Assemble the right engagement team (AU-C §300.05)
Assigning complex or difficult areas of an audit to the appropriate level of expertise, depth of experience, or extent of review is an important step in reducing the chances of an error. Take care to ensure the most experienced engagement team members are heavily involved in identifying audit risks and responses.
Remain flexible
As your audit progresses, remember that planning is a guide for work to be performed, not a step-by-step instruction manual. Flexibility sets a positive tone that can be established in planning and carried through to issuance. The audit plan and strategy developed at the start of the engagement should be updated and adjusted based upon information gathered throughout the engagement.
Be mindful of the new auditor's reporting standards
The AICPA's Auditing Standards Board new auditor’s reporting standards are going into effect for years ending on or after December 15, 2021. The new standards are designed to improve the transparency and relevance of the communication in the auditor’s report. For a snapshot of the new standards, see “New Auditor Reporting Standards: What You Need to Know.”
Seek outside help
As you begin the planning process, keep in mind that Collemi Consulting & Advisory Services, LLC has decades of experience helping our CPA firms prepare for their calendar year-end audits and can partner with you to see what was effective (and what wasn’t) in the prior year’s audit, address new considerations, and help you develop a game plan for this year’s engagements.
Don’t be tempted to rush right into this year’s process. Spend 20 percent of your time creating the audit plan, and you’ll set the stage for a seamless, more accurate, collaborative engagement.
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The new auditor's reporting standards are brand new territory for most CPA firms; schedule an appointment with us, and we’ll help to ensure the transition is a smooth one for you and your assurance practitioners.
