Minimise regulatory risk, improve quality and maximise audit team productivity with MyWorkpapers

2nd Sep 2020
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With the Big Four coming under increasing pressure over their audit practices, there is a real possibility that a significant slice of the audit market will become up for grabs to smaller firms in the coming years.

However, as the issues the Big Four firms have encountered make clear, there are substantial risks to practices looking to ramp up audit work, especially when it comes to regulatory interventions from the ICAEW following QAD visits.

Innovative cloud-based workpapers platform, MyWorkpapers, provides a cost-effective tool for mitigating this risk

What are the most significant regulatory risks facing auditors?

Helpfully, the ICAEW’s Professional Standards team has provided a list of the top 10 most common areas of failings identified during QAD visits:

  1. Audit evidence

“The most common significant area of weakness on audit files we review, in particular: revenue testing, fixed assets, stock and work in progress, and other areas of professional judgement such as goodwill and other intangibles.”

  1. Audit documentation

“Significant issues with documentation arise when firms have not recorded important aspects of their audit work on key assertions in material areas, or key areas of judgement. We also sometimes find that key working papers have not been attached to electronic files, or that electronic files are not archived on a timely basis.”

  1. Identifying and assessing risk

“We cannot always see how well the auditor understands the client’s business and activities or that the required design and implementation testing has been done. We also sometimes identify apparently significant risks not identified as such by the firm.”

  1. Audit sampling

“Audit sampling should reflect the materiality and risk of the relevant balance or class of transactions. Samples are sometimes taken from a restricted population, for example, overdue trade debtors, with no testing of the – possibly lower risk, but very material – trade debtors within credit terms at the year-end.

“Firms sometimes reduce sample sizes for controls reliance or substantive analytical procedures without carrying out the appropriate testing to justify it.”

  1. Auditor’s responsibility relating to fraud

“There is sometimes no evidence of discussion about fraud with management or consideration within the engagement team discussion.

“WE also raise a number of points on testing of journals to address the risk of management override. The risk of fraud in revenue recognition is also sometimes rebutted without a strong enough justification.”

  1. Going concern

“For many profitable and financially sound businesses, going concern may not be a particular risk; however in other cases, judgements can be difficult making this a high-risk area.”

  1. Special considerations – audits of group financial statements

“Group audits can present major challenges to firms, especially when there are overseas components and where the firm lack experience in dealing with these situations.”

  1. Audit considerations relating to an entity using a service organisation

“Firms sometimes place reliance on service organisations without going through the required steps. Firms do not always identify all relevant service organisations at the outset, and sometimes there is no evidence of consideration at the planning stage. Firms sometimes obtain controls reports from third parties but do little more than place them on the audit file. A number of our findings in this area relate to pension scheme audits.”

  1. Related parties

“Our most common finding in this area is a lack of evidence that the firm has made appropriate enquiries of those charged with governance. We may be convinced from our discussions that the firm has sufficient knowledge of the relevant parties to assess risk, but the audit file does not always demonstrate this. We sometimes identify related party transactions from documentation on the audit file that the firm has failed to identify and which are not disclosed in the financial statements.”

  1. Written representations

“Firms do not always obtain all the required representations. This may be because they haven’t used a standard template or because they have deleted some items without realising they were specifically required by auditing standards.”

These ten failings share several common threads, which can be summed-up as failures of:

  • Rigour and thoroughness;
  • Record keeping; and
  • Professional judgment.

How MyWorkpapers can help

MyWorkpapers, coupled with the Audit Mercia Pack, provides a powerful tool for auditors, which can help put your mind at rest about the prospect of a forthcoming QAD visit, with features that promote rigour and thoroughness and good record keeping. In doing so, it also helps promote sound professional judgment.

Rigour and thoroughness

At the heart of MyWorkpapers are customisable workflows, dashboards and analytics, coupled with dynamically-built Workpapers that include programmes and checklists. Meanwhile, query and review points can be tracked and managed, while managers and partner can scrutinise work in real-time with the ability to review and sign-off jobs easily.

It is obvious how these features can help mitigate the possibility of weaknesses arising around audit evidence – the single most common area of concern identified by the QAD team.

These features also provide an important safeguard too against failures that relate to identifying and assessing risk. The accountability systems built into MyWorkpapers means that a member of your team must consider risks at every stage of the audit, managers and partners must sign the work off. The features force the entire team to ask the question throughout the audit of whether something might be a risk.

The same is also true of several others of the main failings identified by the QAD team, including those relating to audit sampling, fraud, going concerns, the use of service organisations, related parties and written representations.  

 

Record-keeping

MyWorkpapers makes record keeping easy with the option to drag, drop and link all supporting documents.

At the same time, the checklists within workpapers are date and user time-stamped, providing an accurate and detailed record of all the points that have been considered as part of the audit and allowing for accountability where issues arise.

Failures relating to audit documentation are, according to the ICAEW the second most common that the QAD encounters and so making linking documents easy and subject to checklist review will have a substantial impact on the chances of making errors in this area.

The same is also true of most of the other areas identified by the ICAEW. The ICAEW highlights that some of the issues it highlights appear solely to be issues of record-keeping: “we may be convinced from our discussions that the firm has sufficient knowledge of the relevant parties to assess risk, but the audit file does not always demonstrate this.”

 

Professional judgment

It might seem at face-value that professional judgement is the area identified by the QAD team where MyWorkpapers has the least potential to make a difference. However, that is not the case.

With the features set out above, MyWorkpapers ensures that all the information you need is, accurate, comprehensive and at your fingertips to support your professional judgment.

Moreover, because MyWorkpapers promotes an especially rigorous, thorough and methodical approach, professional judgment is freed from some of the unconscious cognitive biases that can often lead to poor decision-making even by experienced and senior professionals.

Frequent prompts throughout the process for members of the team of all level of seniority feed into a culture of consistently and carefully exercising professional judgment.

Finally, because MyWorkpapers automates many of the more administrative elements of the audit process, it frees-up time for deep consideration of the issues and allows for professional judgment to be exercised more carefully.

Contact us now to find out how MyWorkpapers can minimise risk, improve quality and increase productivity in the audit process.

 

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