December 1, 2021

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:


  1. Assessing prior experience with the audit client and audit procedures performed in prior audits
  2. Facilitating discussions among the audit engagement team members
  3. Developing an understanding of the audit client
  4. Identifying the risk  of material misstatement due to fraud or error
  5. Identifying the accounting processes and key controls
  6. 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.

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There’s Only One Year Left to Implement the PCAOB’s New Quality Control Standards

November 18, 2024
ADDITIONAL GUIDANCE: Since this blog was first published, the PCAOB released two new guidance documents. The Nov. 26 updates can be found here: An additional overview of the requirements of QC 1000 and staff guidance for firms about how to comply with the standard. This document provides additional staff insights on scope and applicability, responding to engagement deficiencies, and documentation for AS 2901, Responding to Engagement Deficiencies After Issuance of the Auditor’s Report. The Public Company Accounting Oversight Board (PCAOB) recently announced a new set of quality control standards designed around a risk-based approach. And there’s only one year to design and implement them. The PCAOB’s new QC 1000 standard is more than two decades in the making, as it replaces the quality control standards it adopted on an interim basis back in 2003 from the American Institute of Certified Public Accountants (AICPA). The new standard is intended to make independent registered public accounting firms significantly improve their quality control (QC) systems. QC 1000 applies to all PCAOB-registered member firms, with more extensive requirements for those that audit more than 100 issuer clients annually. It has been approved by the U.S. Securities and Exchange Commission (SEC) and goes into effect on December 15, 2025. The new requirements and the work required to implement them will be extensive, and the larger public accounting firms require external oversight of the QC system. Therefore, it is strongly recommended that firms do not put it off until the last minute. At its core, the new standard is intended to enable firms to identify their specific risks and design a quality control system including policies and procedures to guard against those risks. The overall goal is to establish what the PCAOB calls “a continuous feedback-loop for improvement.” In this, the new standard differs from the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Quality Management No. 1 (ISQM 1) and the AICPA Statement on Quality Management Standards No. 1 (SQMS 1). An extensive but not comprehensive comparison document of the three standards may be found here, but is presented only as a reference tool. New requirements QC 1000 has requirements that do not appear in other QC standards. They can be more prescriptive or more specifically tailored to the U.S. legal and regulatory environment. There are 10 main areas in which the QC 1000 standards go beyond other, existing standards. These are: Evaluation and Reporting: QC systems must be evaluated annually and reported to the PCAOB. They must be certified by specific individuals with responsibility and accountability for the firm’s QC system. Governance and Leadership: Firms must create and maintain clear lines of responsibility and supervision. Larger firms must have outside oversight and a confidential complaint system. Ethics and Independence: Quality objectives must be tailored to the U.S. regulatory environment. Larger firms must implement an automated system for identifying securities investments that could impair independence. Monitoring and Remediation: QC 1000 divides monitoring into engagement and QC system levels. Engagement and QC deficiencies are defined, including requirements for their determination. Larger firms must (and smaller ones should) monitor in-process engagements. Quality Objectives: The firm’s personnel must comply with its policies and procedures Information and Communication: Quality objectives for communication with external parties are established at the firm and engagement level. Communication of the firm’s QC system’s policies and procedures must be communicated in writing. Resources: The firm’s personnel must adhere to standards of conduct. Policies and procedures must address both enumerated and circumstance-specific competencies. Mandatory training, licensure and technological resource requirements are established Risk Assessment Processes: Quality risks must be identified and assessed annually. Roles and Responsibilities: A single person must be assigned responsibility for each role and responsibility in the QC 1000 standard. Documentation: With respect to the QC system’s operation, documentation that allows an experienced auditor to evaluate the operation of quality responses must be provided. Documentation must be retained for at least seven years. That’s not an exhaustive list, but it does give an indication of how much work will be involved. And it’s happening at the same time as the AICPA extensive new Statements on Quality Management Standards (SQMS) requirements are coming into effect . Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101.
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