Make the move to a culture of quality audits
Henry Wadsworth Longfellow once said, “It takes less time to do things right than to explain why you did them wrong.” However, many audit firms think about quality as a task carried out at the end of the audit by the quality control reviewer. The current QC process in firms makes it easy for staff to get complacent and think, “If I don't get it right, the QC reviewer will catch it.” In our experience, comments written by QC reviewers are more about forms and preferences, versus whether the audit complied with professional standards.
We’ve noticed QC reviewers who almost seemed to have a quota for review comments. Even if there were no material or significant issues, reviewers still write up a painful list of review comments.
What is wrong with this picture?
Quality is about getting it right in real time so we don’t have to depend on someone catching our mistakes down the line. Quality is one of the five attributes of a framework for audit leadership we’ve developed over the years. The other attributes are relevance, business-mindedness, innovation and empowerment. The key to quality in audit is building it into the fabric of your culture and moving from quality control to quality assurance.
Developing a culture of quality
That quote from Longfellow is consistent with our philosophy of “First Time Right,” which is an attitude that means the firm creates an environment of learning, supervision and quality review throughout the audit while staff strive to get it right in real time. First time right makes you a better auditor.
First time right is not waiting for review to catch errors. It’s not reducing the audit to a form-filling exercise. When you don’t get it right the first time, you risk getting the report out too late because the wrap-up stage takes more time than you planned for. Too often, this means pushing work up to the partner or manager.
A quality culture thrives when you create a culture of openness. An open culture depends on putting a high value on asking and answering questions. You need to be open to new ideas, and you need to be a mentor and coach to your team. Open-ended, free-for-all discussions stimulate thinking about every aspect of an audit. Taking the time to schedule active learning sessions — and making it a priority — will help everyone on your team become better auditors.
Younger auditors will appreciate the freedom to approach the audit differently than SALY. An open culture will keep them accountable to the standards when the channels of communication with the manager or partner are always open.
Move from quality control to quality assurance
In conversations around the country, we frequently ask the lead partner what the goal of their audit is. Too often they link the goal of the audit to passing peer review.
Why are audit partners not saying that the goal of audit is to ensure that the correct opinion is issued, to protect the public interest and to serve the needs of the client?
In a typical firm, most just pay lip service to those goals and leave everything to QC. Quality control is done at the end, not as part of the audit process. This means you are abdicating responsibility for quality to your QC expert.
Manufacturers have learned that if you only check for quality at the end, you’re creating rework and waste. This does not add value. Instead, they inspect for quality throughout their process. This is how they ensure quality in their products.
In audit, the way we inspect for quality is by review. But unlike the manufacturers, who inspect for quality as the work is being done, we wait weeks (or even months) to review the work. And for many auditors, the goal of review is just to get the file through review. Reviewing at the end is quality control, not quality assurance.
To move to quality assurance, reviews and appropriate comments need to be done as close in time to the work as possible, contemporaneously throughout the audit. This needs to happen during fieldwork, not just in the wrap-up stage. You need an open culture at your firm to do this, where everyone feels free to ask questions as they go.
The first question of the reviewer should be, “Are there any areas of risk that you want me to pay special attention to as I’m looking at this section?” Then, when the review is completed, don’t just turn over the file, saying, “My comments are in the file,” but sit down and talk through your review comments so they understand. This eliminates the need for rework when a comment isn’t fully understood. Review comments should be a conversation, not a “gotcha” moment, or comments for the sake of comments and personal preference.
Mastering this process will not only lead to a culture of quality assurance but will significantly improve timeliness of report delivery.
Quality assurance isn’t rocket science
To move into quality assurance, you must understand four things: the client, the industry, the audit standards and how to audit.
Too often, understanding the client develops into a form completion exercise where the same “Understanding the Client” form is filled out for every client. This doesn’t create new intel on the client, and it doesn’t enable the team to create value throughout the audit. Additionally, much of this information is already documented elsewhere; thus, we are creating redundancies instead of value.
You can’t truly understand an industry or client if you only perform a single engagement in a specific industry. Instead, having purposeful niches and developing expertise leads to high-quality work and better client service. Think of emerging industries, such as renewable energy and cannabis. These offer incredible upside for business growth. However, a firm must commit the appropriate resources to these niches to build real quality into those engagements.
Most firms don’t challenge their people to understand the audit standards. Holding staff accountable for understanding the standards really isn’t as daunting as most CPAs believe. Frequent open-ended discussions about the standards ensure that your team understands the purpose behind what they are trying to accomplish. This practice will innately build quality into your audit practice and create a team of better auditors.
To develop an understanding of how to audit, we like to do a plain paper exercise with firms. We put an audit team in a room and give them a pad of paper. We ask them to develop an audit program for a specific area. This exercise removes the checklist-completion mindset and helps to create a culture that challenges SALY thinking.
What can quality assurance do for your firm?
Moving into quality assurance means that quality is built in from the start, not bolted on at the end. This is a notable difference from the way most firms operate and will make your firm stand out in a rapidly commodifying market. This means your team knows what they’re doing, and they’re willing to stand behind it. It means you build a team of the best and brightest because those people want to come work for you.
Quality assurance ensures that your audits satisfy the appropriate goals: to ensure that the correct opinion is issued, to protect the public interest and to serve the needs of the client.
Most important, quality assurance makes you a better auditor.