| Highlights of 2004 Midyear Meeting Session: James L. Bierstaker, University of Massachusetts Boston; |
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The purpose of this article is to discuss briefly the highlights of the panel session sponsored by the Audit Education Committee entitled "The Implications of Current Audit Approaches for Audit Education." Panel members included Kevin Bouchillon, a PwC Partner in the Global Audit Methodology Group and Steve Glover, an accounting professor from BYU. Steve recently completed a two-year "tour" in PwC’s National Office. Kevin explained how PwC takes a top-down, strategic, risk-based approach that drives the entire audit process.* PwC begins with a comprehensive audit tool for examining risks at the client acceptance/continuation phase, known as FRISK, and uses the output of this risk assessment to drive audit planning. Auditors at the manager level and above enter information into FRISK. FRISK calculates a weighted risk score from 11 to 55—any score above 42 is considered higher risk. PwC estimates that, over a six-month period, about 500,000 hours of audit work had been reduced by discontinuing relationships with higher risk clients. However, as discussed below, this has been more than offset by the increased amount of work generated by Sarbanes-Oxley. Interestingly, FRISK generates a lot of false positives by design and it is very difficult for auditors to "work backward" to get the risk score they desire. The conditions that result in a higher risk designation are shared with management and members of the audit committee, and ways or reducing risks are discussed. PwC expects that everyone on the audit team from the engagement partner to first-year staff will have an understanding of the client’s business and industry. Although managers and partners are expected to have the most sophisticated understanding based on their experience, PwC uses a team-based approach where staff frequently participate in meetings with managers and partners where they are expected to make contributions. Staff also are frequently involved in researching various aspects of the company using PwC’s "Business Analysis Framework" (an audit tool designed to facilitate a thorough understanding of the audit client’s business objectives, risks, industry, competition, strategy, and value-added activities). Steve pointed out that, while PwC’s approach involves proprietary software and jargon, the approach is what most auditing professors would consider effective risk-based auditing. There has been a movement to strengthen basic audit skills as well as to understand new standards and requirements given the events of the last few years. PwC’ integrated software improves the linkage between the up-front risk assessment and actual audit procedures. In the past, partners understood the implications of the business analysis and risk assessment, but this understanding was not always conveyed clearly to the staff performing audit testing. When asked about the use of specialists, Kevin stated that specialists are used based on risk triggers. In addition, he pointed out that, after Sarbanes-Oxley, the mindset has changed regarding the use of specialists—PwC attempts to integrate them more completely into the audit team. As a result of Sarbanes-Oxley, fixed-fee contracts are less common, as it is increasingly difficult to estimate the scope of an engagement in the changing environment. In addition, partner compensation is tied to factors such as audit quality and staff retention, but not audit revenues. Regarding SAS No. 99, Kevin stated that brainstorming is performed during the audit team kickoff meeting, and that someone on each audit team is responsible for ensuring SAS No. 99 compliance. Additional brainstorming is completed during the "taking stock" phase of the audit. Kevin stated that SAS No. 99 requires more systems time than before to search carefully through journal entries. Staff research on business risks also is important for SAS No. 99. Kevin indicated that the ability to perform research is one of the most important skills that auditors (and auditing students) should possess. There is so much information needed during an audit that no one can possibly have it all on hand, so they need to know how to use technology to obtain answers. On PwC’s larger clients, someone on the team is assigned to be the team’s knowledge specialist (i.e., staying current with important industry and technical accounting developments and sharing the information with the team). Kevin emphasized that it is very important for auditors to have professional skepticism and develop their own point of view before consulting with management. He also said that auditors should avoid the checklist approach. In addition to effective research skills and professional skepticism, Kevin said that students should have good language and writing skills, and that they should know how to be concise. * For copies of Kevin’s presentation, go to |