In today’s challenging economic environment, independent auditors — from sole practitioners to the largest international CPA firms — are under a microscope to ensure they are achieving high-quality auditing of financial reporting. CPA firms have recently been in the crossfire of negative results reported by standard-setters and regulatory agencies.
One way to steer your ship clear of these treacherous waters is to increase audit quality across your assurance practice. When independent auditors, regulators and investors refer to the term “audit quality,” most tend to focus on the credibility of the audited financial statements. In other words, did the auditor deliver an appropriate professional opinion that was supported by sufficient evidence and objective judgments? In order to answer that question, we must first identify the key ingredients that drive audit quality:
So how can you ensure your assurance practice does not get sued by an audit client, fail an AICPA peer review or face a regulatory enforcement action? Follow these 10 recommendations for boosting the quality of your audit practice:
1. Strengthen the "tone at the top." Firm leadership should:
2. Enhance your client acceptance and continuance process. Perform sufficient client background checks. It’s important to only associate with highly ethical clients.
3. Hire or align with experts, specialists and consultants. Have sufficient technical personnel on hand at your firm or have access to external experts, specialists and consultants who can provide you with the appropriate advice when facing challenging issues.
4. Offer high-quality continuing professional education and training. Offer a blended training package to increase competency from a technical and soft skills standpoint. Focus on topics such as:
5. Establish or outsource a quality control department. If possible, consider investing in or outsourcing a quality control department that will:
6. Streamline your audit process. Ensure all engagement teams consistently apply and streamline your audit approach so they can focus on areas of high risk and audit execution.
7. Increase specialization. Consider specializing in a specific industry or niche so that you can focus your attention and build efficiencies to increase engagement realization.
8. Rotate key professionals on engagements. Consider rotating partners, managers and engagement quality control reviewers on a periodic basis to add fresh and new perspectives to your high-risk attest engagements.
9. Join an accounting network or alliance. Consider joining a reputable accounting network or alliance program to collaborate and share with other CPA firms.
10. Incorporate data analytics. With many attest clients processing their transactions electronically, CPAs are getting more involved in data analytics — the art and science of processing “Big Data” to discover and analyze patterns, identify anomalies and extract other important information embedded in data through analysis, modeling and visualization relative to human behavior and interactions. Data analytics can be utilized to enhance audit and review engagements, forensic investigations and consulting engagements, and to assist clients in business decisions. For CPA firms, data analytics is a powerful tool because it can help auditors and accountants achieve 100-percent coverage in substantive testing, which decreases engagement risk while increasing efficiency and realization.
Salvatore A. Collemi, CPA, is the managing member and founder of Collemi Consulting & Advisory Services, LLC. He is a member of the NJCPA Content Advisory Board.
We provide trusted technical accounting and auditing expertise when you need it the most. Serving a full range of constituents in the public accounting profession, we help identify issues before they become problems.