New accounting standards and the political and regulatory environments make this a time of significant change for auditors. Here are tips from regulators on how to stay the course and deliver high-quality audits.
Maintain independence. Dialogue between auditors and management about new accounting standards can lead to better financial reporting and higher audit quality, SEC Chief Accountant Wesley Bricker said at the AICPA Conference on Current SEC and PCAOB Developments in December. But auditors must be mindful of independence rules as they provide their knowledge and points of view to management. "Determining the extent to which an auditor can provide accounting advice to its audit client requires professional judgment and common sense," Bricker said. "Auditors should never act as management or be involved in decision-making; otherwise, the auditor could later be put in the position of auditing what is essentially his or her own work."
Plan carefully. Time pressures can be a significant challenge to thorough, effective auditing. That's why careful audit planning is so important, PCAOB member Lewis Ferguson told the PCAOB International Institute on Audit Regulation in December. He said firms should have policies and procedures such that audits are staffed appropriately and are overseen by engagement partners and reviewing partners in such a way that auditors can move forward on a timely basis. "There should also be time for adequate supervision, including participation of experienced team members in the planning oversight and quality review of the audit," Ferguson said. "... Firms should have the resource bandwidth, and appropriate mechanisms, to deal with last-minute crises and unexpected events in the busiest places of the audit."
Use good judgment. Auditors can use technology to be more efficient and effective in their work, but there is a human element that cannot be replaced by automation. "We will still need experience and appropriate judgment to make sure we're doing the right thing," Helen Munter, director, PCAOB Division of Registration and Inspections, said at the AICPA Conference on Current SEC and PCAOB Developments.
Be adaptable and respond appropriately. "Just as the market ebbs and flows, auditors should continually monitor emerging risks, react timely, and consider adjusting their audit approach as appropriate," Munter said. Targeted actions in response to emerging risks are a key to investor protection and audit quality, she said, encouraging auditors to constantly ask how they can do better.
Embrace change and make a difference. Change can bring new opportunities and new ways of looking at things whether the change comes through new accounting or auditing standards, technology, or the environment in general, Munter said. With this in mind, she said, auditors should ask what they can do to make things better and keep their eyes on the goal of investor protection, which is where she said the focus of audit work needs to be. "Each person is critical to protecting the quality of the audit," she said. "And each person is critical to a system of quality control."
—By Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com), a JofA editorial director.