The Balancing Act
David Stevens weighs in on how changes to the audit standards might affect the methodology an audit practice employs when conducting an audit. Dave is our expert content advisor for our Audit products ( Audit System and Agile Audit on Caseware Cloud).
An ongoing challenge for any audit firm striving for optimal audit quality is to strike the right balance between driving consistency in the approach to audits undertaken and providing flexibility for their auditors to apply appropriate levels of professional scepticism and judgement.
A recent example of this tension between consistency and flexibility, is how audit firms are expecting their auditors to document their considerations of the new ASA 540: Auditing Accounting Estimates and Related Disclosures requirements. Audit firms are trying to find the right balance between ensuring auditors consider all the inherent risk factors that might be present in an audit area, without creating onerous documentation expectations for those audit areas not subject to significant estimation uncertainty.
Another example is how auditors are expected to determine sample sizes. I think the most effective model is one which leads to consistent sample sizes on populations with similar risk profiles. Each model should, however, give an auditor the option to override the end result, where this is supported by adequately documented justification.
Upcoming auditing standards, ASA 315 and ASQC 1, ASQM 2 and ASA 220 will be upon us before we know it. We are currently planning the changes required to various Caseware products over the next 12-24 months to ensure we update template functionality and content related matters can deliver the most efficient and effective outcomes for our customers.
You might also be interested in Navigating the New Audit Quality Management Standards with Dave Stevens
WHAT SHOULD AUDIT FIRMS BE DOING TO GET PREPARED?
Over the next 6-12 months each audit firm should be turning its attention to the upcoming changes to ASA 315 and the quality management standards and starting to consider how these will impact them.
It might be helpful to start with the following questions:
- Is our audit firm’s methodology fit for purpose?
- What changes need to be made to ensure compliance with the incoming auditing and quality management standards?
- How can we strike the right balance between consistency and flexibility in our changes to our audit methodology?
Feel free to reach out to me if you want to discuss how the future changes are likely to impact your firm.