For the nation's auditors, the beginning of the 21st century was, unfortunately, defined by mammoth accounting frauds such as Enron, WorldCom, Qwest, Fannie Mae and Freddie Mac, and a searing lack of public confidence in the auditing process in particular and in the profession in general.
That, in turn, set the table for sweeping and game-changing measures such as the Sarbanes-Oxley Act, a series of risk assessment standards and, most recently, the Dodd-Frank Financial Reform Bill.
The snowballing amount of new regulations, the increasing complexity of accounting standards, stronger competition, the pressure to reduce audit fees, peer review, and the dangerous sophistication of audit fraud have made it exponentially more difficult to successfully perform audit engagements.
Add to that the probability of convergence of U.S. GAAP with International Financial Reporting Standards, toss in more companies tagging financial data via the Extensible Business Reporting Language - and a first-year associate can probably tell you that it's not your father's audit engagement.
"It's a much different landscape than even 10 years ago," explained Marc Blythe, president of California-based accounting consultancy Blythe Global Advisors and a former audit partner at Big Four firm Ernst & Young. "I think when you are an auditor today, what's most important is someone else's view of what you're doing. You're basically walking around naked. Everything you do is subject to review and second-guessing much more today."
Chuck Landes, vice president of professional standards and services at the American Institute of CPAs, who oversees the technical activities of the Auditing Standards Board, said that one of the biggest changes for auditors came via the ASB's Risk Assessment Suite of Standards several years ago.
"Those standards eliminated the auditor's ability to default to a maximum control risk and require every auditor to now better understand the entity's system of internal control and to tailor his or her audit program to be responsive to those control strengths and weaknesses," he said. "That's caused heartburn for some smaller firms because it has essentially eliminated the 'canned audit program' and has required the auditor to first understand the controls and processes that are in place and then create a tailored audit program for every client each year."
RESPONDING TO RISK
The bygone era of piles of workpapers littered with manual audit ticks is waning in favor of state-of-the-art technologies, as many of the top vendors have, over the past several years, unveiled a wide range of audit-centric applications to help the profession navigate the nuances of modern-day audits.
"I think that, to me, the biggest challenge [auditors] face is sheer volume," said Scott Spradling, senior director of accounting and auditing new product development for the Tax & Accounting business of Thomson Reuters, and a former auditing veteran at KPMG. "Things change so much more quickly than when I began. One of the things we've been able to do - coming from an audit background and a group with similar backgrounds like myself - is build an audit tool that takes the auditor through the engagement process and links it out to relevant guidance."
Spradling's reference was to the newest addition to Thomson Reuters' Smart Audit Suite - Smart Practice Aids - Field Work. The new addition, which was judged tops in the Audit Category of Accounting Today's Top New Products for 2010, also integrates with the company's flagship platform Checkpoint, as well as Engagement CS.
"Today's auditors are challenged to produce a product faster and of higher quality," said Sam High, vice president and general manager of accounting, audit and workflow at CCH, a Wolters Kluwers business. "And also doing it more efficiently. As a result, there's a lot of tools geared around the auditing core - portals, scan and workflow products. Going forward, there's globalization and convergence with IFRS they will have to deal with."
Within CCH's 11-title A&A inventory is ProSystem fx Knowledge Coach - another past winner of Accounting Today's Top New Products, which combines the risk-based, industry-specific approach of ProSystem fx Knowledge Tools - CCH's interactive workpaper application - with an audit workflow engine that, according to High, streamlines audit planning, providing a start-to-finish audit management process.
But not only are accounting standards globalizing, but auditing standards are as well, with the Clarity Project of the Auditing Standards Board aiming to rewrite generally accepted auditing standards to converge with international guidelines.
STILL HOLDING OUT
However, despite all available offerings, those monitoring the profession also admit instances of auditor recalcitrance in adopting new applications.
"A lot of it is personality-related," explained Thomson Reuters' Spradling. "When you do an audit, the documentation is the lifeblood. Anyone who does an audit knows that someone, somewhere will look at that documentation down the road, and they are careful of that. Many have grown up on paper binders and they have a hard time moving away from that."
"I have seen auditors fight technology," said Carolyn Newman, president and co-founder of Audimation Services, the U.S. distributor for the CaseWare IDEA audit analysis application. "Auditors think of themselves as experts and once they're comfortable with something, they tend to stick with it."
Newman, who spent 12 years as an auditor with BDO predecessor Seidman & Seidman, remembers that when PCs first debuted, auditors tried to get the process to fit in with the technology.
"If you have a tool that works well with you, that frees your mind to make the critical decisions necessary," she said. "We've seen firm mergers where a larger firm merges with a smaller one and the smaller firm was using IDEA and it was eventually adopted by the larger practice. But technology and software is also something that you need training in to be effective. What unfortunately happens is that firms try to save money by training themselves. If done incorrectly, all that does is spread out the ineffectiveness."
Newman predicted that the profession will gradually move toward the continuous auditing approach. "Like anything else, firms will embrace it once they can understand how to set up frequent testing with their clients. But that [continuous auditing] will help eliminate a lot of waste and abuse."
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