The Why And How Of Auditing: Auditing Made Easy
Genres: Accounting
Book Preface
Each year, Vince Lombardi (the revered coach of the Green Bay Packers) held a pigskin up and said, “This is a football.” And he did so before the best players in the world. Why? He knew that winning is all about basics: blocking, tackling, passing, running.
Understanding fundamentals brings clarity and power. And that’s what I’m after in the The Why and How of Auditing.
The Pain of Not Understanding Auditing
Recently, I received this email:
Charles,
Our peer review is now complete. The reviewer hammered our planning and risk assessment documentation. Now we have to take remedial auditing classes. It’s embarrassing. We thought we were doing a good job, but apparently not.
The other issue was “a lack of documentation.” Then, strangely, he said we sometimes do too much work. Too little, too much—
not sure how to find the right balance.
Can you help?
Tom
Moving from Wasteful Auditing to Efficient Auditing This book is all about striking the right balance. We’re not after a fat file or a flat file. We’re after a just-right file. One that supports our opinion without extraneous information.
Lucy used to say to Charlie Brown, “I will hold the ball, and you kick,” but as Charlie Brown would lean into his launch, she would pull away. And you remember the result: Charlie Brown, lying on his back.
Some audit procedures, like the invitation to kick, are tempting.
They call us like a familiar friend, but they are a waste even if we have done them for years. In the end, they leave us staring at the sky.
We need to know what is best and what is necessary. When you’re done with this book, you will know what you need to do.
The Organization of This Book
This book addresses three key audit areas.
1. Planning.
The first four chapters of this book are about planning. This section includes client acceptance, risk assessment, auditing for fraud, and creating your audit plan.
2. Performing.
Next, in chapters five through twelve, we look at performing the audit. You’ll find specific account balance guidance for areas such as cash, receivables, payables, and debt.
3. Completing.
And finally, chapter thirteen teaches you how to complete your audits.
My Perspective
I have audited companies, nonprofits, governments, and other entities in the United States for the last thirty-four years. The guidance in this book is based mainly on my knowledge of generally accepted auditing standards (in the United States) and upon my experience in using those standards. It’s from that perspective that I write.
This publication is not an exhaustive audit guide. (If that is what you are after, this is not your book.) Rather, this book is designed to make auditing understandable. It’s concise on purpose.
Sample Audit Guidance
While there is no one standard audit methodology, I provide audit guidance in relation to typical account balances. For example, in the The Why and How of Auditing Cash chapter, I discuss common relevant assertions such as existence and cutoff. However, every
company and every audit is different. The relevant assertions, the risk of material misstatements, and the audit procedures vary from entity to entity. Why? Because every entity is different.
Therefore, you’ll want to consider how this book applies to your particular audits.
Let’s Begin
It is my sincere desire that you enjoy this book and that you find yourself reaching for it often.
I want you to be the best auditor possible.
So let’s begin.
To my twin brother, Harry. Thankful for his constant encouragement.
PA R T O N E
Planning the Audit
TA B L E O F CO N T E N T S
Part One ……………………………………………………………………………………1
Chapter 1 – The Why and How of Acceptance and Continuance ……………….2
Chapter 2 – The Why and How of Risk Assessment ……………………………….8
Chapter 3 – The Why and How of Auditing for Fraud …………………………..20
Chapter 4 – The Why and How of Audit Planning ……………………………….30
Part Two ………………………………………………………………………………….41
Chapter 5 – The Why and How of Auditing Cash ………………………………..42
Chapter 6 – The Why and How of Auditing Receivables/Revenue ……………50
Chapter 7 – The Why and How of Auditing Investments ……………………….58
Chapter 8 – The Why and How of Auditing Property ……………………………64
Chapter 9 – The Why and How of Auditing Payables/Expenses ………………72
Chapter 10 – The Why and How of Auditing Payrol ……………………………82
Chapter 11 – The Why and How of Auditing Debt……………………………….92
Chapter 12 – The Why and How of Auditing Equity …………………………..100
Part Three ……………………………………………………………………………..107
Chapter 13 – The Why and How of Wrapping Up Audits …………………….108
Conclusion …………………………………………………………………………….120
Appendices …………………………………………………………………………..125
Appendix A – Preliminary Analytics ……………………………………………..126
Appendix B – Understanding the Audit Risk Model …………………………..134
Appendix C – Audit Documentation ……………………………………………..138
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