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October 16, 2023

The "Write" Stuff

Strengthen your audit documentation and business communications skills!

Auditors are relied upon for their ability to analyze and audit financial statements and footnote disclosures, but equally as important is their ability to write — and communicate — effectively. Whether it’s preparing audit documentation or replying to a client’s email, the ability to communicate accurately and clearly is key. When performing an audit of financial statements are involved, written proof is always critical, so it’s imperative to be able to communicate these matters in a concise and articulate way in order to satisfy Professional Standards, regulators and standard-setters.

Here are some tips to add polish to two common types of communications auditors use:

 

The ABCs of Audit Documentation


For auditors, being able to draft audit documentation that can stand on its own without any verbal explanation by the engagement team is the goal. Prepare audit documentation sufficient to enable an “experienced auditor” who has no previous connection with the engagement to understand the nature, timing and extent of the auditing procedures performed, the results of audit procedures and evidence obtained and the significant judgments made and conclusions reached on significant findings or issues. Well-written audit workpaper documentation can be a great asset in enhancing audit quality as well as helping audit engagement teams plan and perform their audits, enable them to demonstrate accountability for their work, and will serve as a record of matters of continuing significance to future audits of the same entry. For each required audit procedure, auditors should document:

  • Identifying characteristics of specific items tested
  • Who performed and date of performance
  • Who reviewed and date/extent of review

 

Here are some important tips to follow:


Time is of the essence. Documentation should be prepared on a timely basis. The longer you wait, the less information you will be able to recall.


Don’t over-write. Can you have too much audit documentation? Actually yes; it’s very common. Don’t overburden the engagement partner, engagement quality control reviewer, peer reviewer, regulators, standard-setters and others with items that do not support material transactions and testing procedures. And be sure to remove superseded workpapers, open items listings, and items in the trash folder.


Include these essential items. Ensure that your audit workpaper documentation includes:

  • Overall responses to address the assessed risks of misstatement at the financial statement level
  • Nature, timing, and extent of further audit procedures
  • Linkage of procedures with the assessed risks at the relevant assertion level
  • Results of those audit procedures
  • Conclusions reached by team
  • Significant issues, findings, and judgments
  • Nature of findings or issues discussed
  • When and with whom discussions took place
  • Document how inconsistencies were addressed


Be mindful of legal considerations. Avoid including commentary or information that could call the audit into question. For instance, do not make extraneous remarks (example: “This client’s books are a mess!”) or statements that may discredit your work (example: “Close enough for government work!”).


Retention of work papers. In keeping with Professional Standards, workpapers for audits of privately-held companies should be retained for a minimum of five years from the report release date.

 

Crafting Better Emails


As the most common method of quick communication between auditors & CPAs and clients, emails are often used to respond to requests, ask a quick question or quickly summarize an attachment. The most important thing to remember when writing an email is that people are busy and may receive hundreds of emails. The key to writing an effective email is to tell recipients only what they need to know in as short a manner as possible.

A general rule of thumb is to use the inverted pyramid principle of putting the most important things at the top so they won’t get missed. If you have to write more than a paragraph, consider using bullet points so that the reader can move quickly through the text. To make things easy for the reader, use a strong, descriptive subject line (example: “Filing deadline for the financial statements is October 15th” or “Quick question about your footnote disclosure”) so that the reader understands the importance of the content.


Finally, don’t try to cover too much in one email; you may confuse and overwhelm the recipient. If you find that the email is getting too lengthy, consider cutting it into smaller topic-based emails that get sent to the client at staggered dates. Most importantly, remember that emails become official documents that may be referenced at a later date. With that in mind, pick up the phone if you want to share highly confidential or sensitive information.

 

Need more help? Invest in your professional development by taking a professional writing course tailored toward auditors and CPAs.

It’s important to remember that the world of accounting and auditing can be daunting for outsiders — even for professional staff with years of experience. As an auditor, you can bridge this gap by ensuring your communications are clear and to the point. Your clients will appreciate that as much as they value your analytical and technical skills.

 

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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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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