To start with, audit or auditing is generally synonymous with an examination, investigation, review, scrutiny or verification. An audit, as a report is produced from the analysis of an organization’s operation. An organization’s business operation must be scrutinized in line with standards which are either set by law, a regulatory body or the entity itself. As we have crossed over into a new year and required by regulation, businesses will begin to engage auditors to review and prepare their books of accounts which will then be used by stakeholders for strategic decisions. Indeed, auditing is a rigorous process. Audit process is a series of steps taken to analyze the operations of an entity by the application of relevant standards and best practices.
There are documented reports of incidents of non-compliance with audit processes which has led to devastating consequences including corporate failure. The widely known Enron scandal is a case in point. That aside, Toshiba (a renowned multinational corporation) in 2015 experienced an internal audit failure. The company is in records to have inflated its earnings by $ 1.2 billion between 2009 and 2014.
Audit failures, however, do not take away the fact that auditing is what it is and (supposed to be) a regular and functional part of a business operation. A documented and standardized audit process must aim at identifying any irregularities, mitigating risks, maintaining consistent audit quality and effectively communicating audit expectations. To ensure efficiency and effectiveness, efforts have been made to optimize the audit process. To optimize the audit process means “doing more with less.” That is, getting more audit activities done with fewer resources without sacrificing its quality or compromising the integrity of outcomes. In an era of rapid technological innovations, automation and digital platforms are streamlining audit processes and ensuring that more audit activities can be done with fewer resources. Nonetheless, we should not lose sight of the fact people are the heart of audit to the extent that the most cutting-edge digital tool will fail to meet audit expectations if they do not uphold ethical standards. Based on this foregoing, this article further provides some guidelines for the audit process with the belief that auditors uphold ethical standards to achieve efficiency and effectiveness. Of course, one size does not fit all but a practical guideline helps auditors to identify and achieve their objectives and add value to an organization.
Risk-based Audit
An audit must be based on the risk assessment of a business’s operations or processes. An audit based on risk assessment provides a criterion for defining audit priorities and specific needs. It is worthy to note that focusing on significant risk incidents and prioritizing them can reduce redundant testing and unnecessary documentation. This invariably optimizes resource allocation and enables the audit team to dedicate more time and focus on areas that pose significant material risks. Risk-based audit, is a more efficient and effective way of determining the appropriate level of assurance and quality. A holistic risk-based auditing is more impactful than just relying only on predetermined checklist or uniform procedures.
Audit Team Selection
A composition of an audit team should reflect the complexity of the audit assignment as well as the size of the entity. In selecting an audit team, it is important to ensure they have the team has the right skillsets to undertake the assignment. One of the strategies to improve audit efficiency and effectiveness is to empower the team with a training program. A training program should equip the team with the skills and knowledge in respect of applicable standards pertaining to the audit assignment and the embedded risks.
Robust Management System
It is worth reiterating that digital or software applications can be deployed throughout the audit process. As an advocate of the integration of digital applications in business, and with my in-depth hands on experience in using recksoft audit software for blue-chip organizations, I can confidently say that automating the audit process cannot be over-emphasized. Indeed, automating the audit process to encompass planning, scoping and data-driven reporting can be very beneficial to all businesses. Hence, investing in a robust management system improves the audit process and ensures its efficiency and effectiveness. A management system and an automated audit platform serve as an enabler for identifying new emerging enterprise risks and developing controls to mitigate them.
Continuously Monitor Activities
It is required by best practices to track the progress of audit activities and use the feedback to make adjustments in the approach during the audits. Automation of the audit process has empowered the auditor to leverage on data analytics to continuously monitor audit issues and action plans to drive behavioral change and the remediation of internal control weaknesses and other gaps. Continuous monitoring of audit activities also offers the opportunity to conduct a review of the audit process with a viewing to improving it during subsequent audits. For instance, issues regarding recurring non-conformities, change of a supply or change of audit team members may require adjustments to audit frequencies and their progress. It is prudent to open to possibilities and not box in oneself what was envisaged prior to the execution of the actual audit.
Preparing an Audit Plan
Benjamin Franklin, one of the famous founding fathers of the USA posits that “if you fail to plan, you are planning to fail.” In the same vein, if you fail to plan for an audit exercise, the outcome will fail to meet expectations. The nature of auditing requires thorough planning and timely scheduling to achieve successful outcomes. That said, audit planning involves drafting the specific guidelines which must be followed when conducting the actual audit. Audit planning defines the road-map for execution and helps to achieve efficiency with the use of resources.
Stakeholder Engagement
Engagement with key stakeholders broadens the horizon of the audit process. Stakeholder engagement involving senior management and employees and other related parties helps to appraise observations, interviews and documentations. It helps to build trust and rapport, deepen collaboration and cooperation between them, and thereby enhance the quality and relevance of data. Thus, an objective audit evidence can be obtained from these engagements. There again, stakeholder engagement provides a platform to understand and address their concerns. What is also paramount is that such engagements must uphold the principles of transparency and impartiality which are very vital to prevent any form of resentment after the audit exercise.
Communication During the Audit Process
Regular communication and status meetings are very important in the course of an audit. This enables key stakeholders to discuss latest audit observations, potential findings and recommendations. Indeed, any incident of risks, poor culture of corporate governance, non-compliance or weaknesses in controls should be reported during the audit process and not just presented in the final meeting or report.
Reporting & follow-up
A formal audit is incomplete and can be described as half-baked if audit findings, conclusions and specific recommendations are not put together in a report. A draft report must be submitted to key stakeholders to give them the opportunity to response to those specific issues wary of their conducts. The responses or feedback as well as any action plan must be added to the final audit report. An action plan must engineer a follow-up audit on the previous findings to establish if corrective actions have been implemented to prevent the reoccurrence of earlier weaknesses and gaps in governance, risks incidents and defects in controls.
Conclusion
Auditing is a meticulous exercise and the process can be optimized and made more efficient by implementing proper strategies. Planning for the audit, adopting a risk-based approach with a coordinated stream of guidelines offers a flexible and effective way to enhance the audit process. Modern technological application meant to improve the process, enhance efficiency and increase productivity by eliminating laborious tasks.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
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