A few links and comments of interest to auditors: audit quality indicators as outcomes or outputs; lighthearted view of how you can steal too; are financials unauditable?
4/21 – Journal of Accountancy – CAQ proposes an approach to communicating audit quality indicators – The Center for Audit Quality, one of the quality control centers of the AICPA, has a proposal to quantify audit quality. The concept will now roll into field testing. The article gives four groups of indicators: tone at the top; indicators of audit team and workload; monitoring results; and trends on reissuance & withdraw of ICFR reports. Take a look at the list and see if they seem to be outputs instead of outcomes. It looks to me like the same struggle the NPO community is having with that issue. The issue is how to you measure actual results instead of measuring what you are doing. Quantifying the year-over-year hours, hours by staff level, experience & training by staff level all seem to be outputs, not outcomes. In addition, if an engagement has peculiarities that make it different from the average (which would likely include a large portion of audit work) then the outputs had better depart from the average.
4/7 — CPA-Scribo – Steal Like a Boss – Charles Hall has a tongue-in-cheek discussion of how a fraudster might describe a fraud. Good job covering opportunity, motivation, and rationalization.
4/15 – Accounting Onion – Look Beyond the Firms for the Root Causes of Audit Deficiencies – Looking at global inspection reports of large firms, the IFIAR reports the most common deficiencies are auditing fair value measurements, testing internal control, and assessing controls over the financials. For banks, two of the three issues are allowance for loan loss and value of investments. Prof. Selling suggests the deepest root cause is that the accounting rules for fair value and loan loss are so complex, dependent on management’s judgment, and conditional on future events, that the numbers are essentially unauditable. He has an appealing suggestion on how to transition financials from historical cost to current cost and then get the audit back to something that can verify inputs and methodology.