Analysis - The audit season - A happier Christmas for auditors

The year-end rush has never been much fun for auditors. But the days of relying on a last minute tick and bash frenzy have gone, they tell Chris Evans.

Christmas didn't used to be much fun for the serried ranks of audit juniors and trainees. While their buddies were out buying presents or getting legless at parties, audit staff were usually shackled to a desk.

With reporting season not far away, long hours and late nights were the norm.

But compliance software and the mixed blessings of Enron have changed the auditor's prospect. He or she no longer turns up at the reporting year end to perform the standard ticking and bashing process; instead interaction with the clients and a greater understanding of their business all year round are the objectives.

Increased pressure and demand from corporate governance initiatives over the past couple of years, in light of accounting scandals such as Enron, has increased the workload of the auditor and made the clients sit up and take note of what their auditor is doing.

Auditor interaction

David Blacher, an audit manager at Baker Tilly, says: 'There is greater emphasis placed on the auditor interacting with the client and really getting to understand the business, and the onset of technology has assisted in this process rather than hindered it.

'Every audit team going out on site has a laptop and so if we had to produce a set of statutory accounts they would have the software to do it. Things like the excel spreadsheet allow us to do a more effective analytical review and play around with the numbers easily and more effectively.'

Peter Chapman, an audit manager at Grant Thornton, stresses that there is now even more to do with electronic audit techniques. 'Because of the risk profile of audits in the last two or three years, there are more caveats to everything we do. But that is part of the enjoyment of the job - facing more challenges. When I was training seven to 10 years back I didn't even see a computer until the second year of my training.'

'Back in the good old days you were able to send your first year students to the basement to spend all day rooting out invoices. But there isn't that need anymore,' Giles Murphy, director of assurance & business services at Smith & Williamson, says.

No mass exodus

That is not to say that technology has replaced the need for more students, Chapman insists. 'We have not had a mass exodus of trainees. Inevitably we lose a few after four or five years, which is when they would normally be coming up to taking a management type role. But that is sensible, we encourage them to look outwardly as well as inwardly. A lot of them bugger off from the audit department but stay within the Grant Thornton network.'

Several students when they first arrive at a firm are unaware of what an audit involves but have to learn very quickly as from an early stage they are sent out on assignments with clients.

'The professionalism that has to be instigated into these people from day one is of utmost importance,' Chapman adds. 'It is quite difficult to come straight out of university having slobbed around for three years and to then suddenly be expected to be a consummate professional, because if they messed something up you never know what damage that could do to a client relationship.'

Judgement not number-crunching

Murphy continues this point by saying that the level of work auditors are now doing is at a much higher level which focuses more on judgement, rather than previously when it was more of a number-crunching exercise.

Trainees also have to contend with all the latest legislative requirements and often provide advice to clients about how to deal with the onset of important developments such as changes to the Combined Code, Sarbanes-Oxley and International Accounting Standards.

There is certainly a greater pressure to consider and focus on issues like independence, Murphy says. 'That is a question we get asked now by clients. Five years ago a client would never ask us whether we were independent. So they seem to be taking corporate governance more seriously and certainly there is greater pressure on auditors to justify that what they are doing is the right thing.'

Bachler also points to money laundering as a key issue as everyone now has a responsibility to report on that. 'The legislative environment in which we operate is one of the key risk areas for auditors going forward.

'Ten or 15 years back, there were just a few FRSs. There are now 19 in the UK and further international ones on the way. With this new legislation comes increasingly improved systems and procedures within the firms to deal with them.'

To make sure errors don't occur, a lot of focus is placed on the planning stage of the audit before the actual field work starts, Bachler stresses.

'We wouldn't start on site work until an extensive planning process has been gone through to identify what the risks are and how we are going to deal with them.

'Also we place significant reliance on analytical procedures as a substantive test and I think five or 10 years ago that wasn't the case. People again went down the route of the traditional substantive ticking and bashing cliche where samples were selected and ticked and bashed for the sake of it.

'The team will now look at actual results comparing them to previous expected results and then look for explanations for the changes from the client. Obviously the audit is still backed up with additional substantive compliance testing where required but as a starting point this analytical approach and really understanding the business is the driver behind the audit.

'Our typical assignment lasts about two weeks with a team of two or three people on site and that probably hasn't changed a great deal. It is more the nature of the work and how they do it that has changed.'

Auditors discover the joy of juggling

The job of audit manager involves a great deal of juggling work, Grant Thornton's Peter Chapman says.

Dealing with listed clients, who find themselves under constant time pressures resulting from their membership of the stock market, means that they often demand answers to questions straight away and so you have to drop everything and do it right away.

'The key to being an audit manager is juggling between those sorts of situations and other less demanding clients without dropping any of the balls.

'The better trainees are those that want to get involved in both the planning and completion stages of an audit, not just conducting the field work. They keep ownership of the job they are assigned to do from start to finish, juggling all their responsibilities and coming back into the office to finish something off if necessary.'

Despite all these pressures there are still several trainees each year looking to progress up the audit ladder and as Chapman points out the average age of the partner has come down by 10 years, which can only enthuse younger people coming through.

Accountancy's Financial Reporting section covers audit issues every month. This month's section starts on p77.

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