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Preparing for audit engagement: Are you ready? A checklist of considerations

Nadya Britton  Enterprise Content Manager for Tax and Accounting // Thomson Reuters Institute

· 5 minute read

Nadya Britton  Enterprise Content Manager for Tax and Accounting // Thomson Reuters Institute

· 5 minute read

Auditors know there’s never been a more challenging time to monitor and meet evolving regulatory changes and professional standards. How their jobs are performed now requires more than accounting and audit knowledge and skills. In fact, the accounting and audit professions have gradually been drawn into the world of automation and automation tools.

To that end, we’ve prepared an audit engagement checklist that explores how automated tools and techniques can enhance the processes and steps.

Each audit engagement is unique, but most share the basic steps of preparation, planning, field testing, and audit procedures, as well as subsequently rendering the audit opinion. To ensure a timely and successful audit, creating and following a succinct outline of your audit strategy (including planning and preparation) is paramount.

Prior to the global pandemic, technology and automation started to take root as necessary tools for audit professionals. But as the pandemic marches on, the utilization of technology — including automated tools — has become mandatory, especially in the tax and audit profession.

Pre-audit engagement

After the decision is made to accept an audit engagement, the auditing team does a thorough risk assessment of the client’s company, which includes assessing the industry, management’s integrity, governance procedures, and internal controls. Today, most companies and industries rely heavily on data, and the ability for auditing teams to examine and analyze the client’s data is necessary. The use of technology at this point can greatly assist in determining the right scope of the data in order to make it relevant to the intended audit.

Having a checklist not only organizes but provides a comprehensive approach to the audit.

Audit engagement checklist

An audit engagement checklist can clarify the audit elements, allowing the auditing team to undertake a holistic review, research, and execution of the audit. An engagement checklist can be as specific as required, based on the specificity of the audit; however, here is a basic framework to create an effective checklist. A useful tool to create the audit engagement checklist is Smartsheet, which allows multiple people to work on the same document without overriding work being done by others. Below is a list of items to consider for the checklist:

1. Prepare & Plan

“One of the most common causes of unsuccessful audits is inadequate planning” says Wade Brylow, Internal Audit Director at Northrop Grumman. Engagement planning starts with creating a strategy for how to approach and execute the audit, and the engagement plan should include the following steps:

  • The audit objective is the foundation of planning and its clarity determines how to proceed with planning.
  • Next, set the parameters and scope of the audit. The number of parameters and the size of the scope is determined by audit itself — consider more than just the tradition parameters.
  • An exhausted list of constraints are identified, including the usual items of budget, time, and resources.
  • Conduct a risk assessment not only of the organization, but of the industry, if needed.
  • Finally, decide which method or techniques to employ for the audit approaches. The approaches are based upon the audit objective, its parameters and constraints, and also taking into consideration compliance-related issues. This critical step can be key to having an effective and efficient audit.

2. Conduct fieldwork

Fieldwork is done based on the planning and includes gathering evidence, statistical and analytical analyses, and all information identified in the parameters. In this step, information is gathered and reviewed, and then audit testing is done to ensure the proper controls are selected.

In addition, at this point key staff members are interviewed and assessments of risk are determined. Obviously, given the restrictions on face-to-face access as a result of the global COVID-19 pandemic, the way audit evidence now is gathered has changed. Automated tools and techniques are required, including, for example, the use of cameras and drones to observe inventory counts. And the use of video conferencing services to conduct interviews is now a necessity.

3. Gather evidence

When planning to gather evidence, it is important that the practitioner maintains a focus on the engagement objectives. Traditionally, proper evidence gathering included physical observation and staff interviews; however, there were some acceptable exceptions, such as the use of telephone interviews if individuals were dispersed around the globe.

In fact, the American Institute of Certified Public Accountants (AICPA) recently issued its Statement on Standards Number 142, which included a list of automated tools and techniques. The Statement also highlighted innovative ways to gather evidence when working remotely.

4. Report findings & file supporting documents

After all the evidence is gathered and the fieldwork is completed, the final piece of the audit engagement checklist is, naturally, to report your findings and file any necessary supporting documents. Using robotic process automation (RPA) and cloud-based software can aggregate all information and data, and allow for more thorough analysis and collaboration among team members. Further, these tools can make vast quantities of data more manageable with much greatly accuracy. In addition, automatization of this steps removes the arduous manual tasks of copying and pasting between applications or cross-referencing data.

As Amy Pawlicki, VP in Assurance and Advisory Innovation at AICPA, said in a recent blog post: “Better access to more data, cloud storage, and technologies such as AI in particular bring tremendous potential to support deeper analytics and greater insights for the benefit… of audits”.

Today, auditors are now finding ways to work differently, and by using the technologies and automation tools that allow them to gather and analyze data, collaborate across teams, and present their findings clearly and more accurately, they are ensuring that these key as aspects of remote work will continue.

To learn more about how to be successful in your audit engagement, check out the Cloud Audit Suite from Thomson Reuters.

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