Audits have been conducted for many years, and most firms have always done them in the same fashion -- using a checklist approach and looking back towards the past to see what should be done for the current year. then the game changed in 2006.
That was when the American Institute of CPAs issued a new set of risk assessment standards. Firms studied them and then trained their staffs, but were slow to change their audit methodology from a "checklist approach" to a "knowledge-based approach". Firms were not rushing to compliance with the updated standards, because they didn't realize that technology advances could help them change the workflow processes, instead of "over-auditing" to be in compliance.
Knowledge-based auditing changes the process by starting each new audit with a clean slate and adding the necessary auditing steps as risks are identified, providing a clear line of sight between identified risks and audit steps. By focusing on the flow of information, the knowledge-based methodology improves communication between audit team members and enables ongoing assessment. There are a number of associations and alliance groups that saw the benefit of a KBA-type of approach and have written guidelines and approaches for their members to follow.
THE BENEFIT TO FIRMS
Today, this type of approach is available to everyone.
"In the past, the connection between audit assertions and program steps was buried in the background, and now it's front and center," said Bill Jenczyk, a principal at the Boston-based firm of DiCicco, Gulman & Co. LLP. "We can now quickly determine that work being done is directly related to a material risk and not just a generic program step, which reduces the risk of over-auditing."
DiCicco Gulman is an example of a firm with nearly 100 staffers that switched to the KBA methodology. A CCH case study conducted of the firm revealed that it potentially saved over 1,680 hours annually by adopting this approach.
Matson and Isom, a 90-plus-person shop, also adopted this approach in 2009 and had a 75 percent reduction in time in preparation of audit programs.
In analyzing the knowledge-based audit methodology, firms need to recognize that with any change, there comes a learning curve in the first year that achieves greater realization in succeeding years -- far outweighing what was the case prior to the change.
KBA software streamlines the process, saves valuable time, and gives auditors the opportunity to get back to the investigative work of auditing -- and it is not just for large firms. A case study conducted on Millhuff-Stang CPA Inc., a small firm with fewer than a dozen staffers, also attested to the quality of work being done by firms using the KBA approach. This firm received a "perfect" peer review report within 18 months of opening their doors for business.
For a firm to truly consider itself future-ready, it should be looking at adopting the KBA approach.
It's tied into a technology solution that will reduce the risk and cost of over-audits. With a KBA audit procedure that is directly linked to specific identified risks, auditors can finally train their staff to focus only on those steps that are needed -- saving time and money by eliminating the unnecessary ones.
David Bergstein, CPA, CITP, CGMA, is director of strategic relationships for CCH, a Wolters Kluwer business.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access