The professional practice using electronic work programme

To obtain more detailed knowledge in terms of how auditors perform audit procedures using the electronic audit programme, observation method is employed. Following an audit team on-site, the information gleaned is reported in this subsection.

The audit is on a distillery company. The company retains several brand names of whiskeys as well as distilling its own malt. Its business activities include selling products of a few whiskey brands, storing up some good whiskeys for more matured tastes, and producing the company‘s own whiskey products by mixing various whiskeys to create new tastes. The team had been working at the client‘s premises for a week by the time of observation and most of the testing and evidence gathering work had been completed. The team was busy putting evidences together to and finishing up the work papers for specific sections of the electronic work programme.

3.4.1 The audit programming system

This firm has recently upgraded its audit programming system. The new system can retrieve past year‘s audit of a client and link it with current year‘s audit programme.

Offering a neat and detailed schedule outlining, this system provides a clear overview of the whole audit and makes it easy for auditors to refer to last year‘s audit.

The audit programme is like a folder, inside which is the list of the main sections in this audit, engagement, preliminary tests, substantive tests, quality control and conclusive work.

Each folder contains a more detailed list of subsections and links to all documents related.

In the engagement section, for example, all contracts related to this audit job are listed, such as the independence announcement and the audit engagement letter. The ‗substantive tests‘ section includes all substantive work on various components of the financial statements like debts, fixed assets and inventory. It also outlines the detailed schedules of the planned procedures of the audit.

The team, on the other hand, was complaining about the over-complication of the new programme. The content of the audit programme is relatively fixed and prohibit skipping of unnecessary sections and tasks, regardless of the nature and size of the client. Once the audit programme is generated, alteration of the schedules is not permitted, inflexible to

change of circumstances. To give an example from the observation, the senior-in-charge made a suggestion to the audit manager about reducing the amount of testing, considering the fact that the client was in a healthy financial situation making a good profit in the financial year. The audit manager also approved this suggestion. Nonetheless, it was not allowed to bypass the planned procedures in the programme because an explicit confirmation conclusive completion is required in respect of each procedure scheduled.

Consequently, significant amount of time was spent on completing predetermined yet redundant schedules. In addition, extra work is spent on the initial set up of the database.

According to the audit manager, the problem had been common in the firm so that all audits that year were allocated extra budget. Adapting to a new system turns out to be very costly to the firm in the first year.

It was observed that junior auditors rely on last year‘s audit as guidance when performing substantive tests on internal control. The junior auditor was testing the accuracy of accounting record by tracing a sample of items in the client‘s accounting system. Referring to last year‘s audit, the junior had decided to simply test on the same sample tested in last year‘s audit. The sample tested last year was not a random sample but items with great book value, which represents over 80% of the total value in the account. Since a few sampled items no longer exist in this year‘s account, the junior were confused and consulted with the in-charger (a senior auditor) of the team. The in-charger then explained to the junior that the purpose of this test is not to test the same items of last year‘s audit.

The junior was advised to test a different sample. In this case, past audit work were considered as specimen. Inexperienced staff believed that it could not go wrong by mere replication of previous year‘s work. It is prevalent that accounting firms standardize their audit procedures and structure their work programme. This has in a way separated judgmental works from systematic works. Juniors and less experienced staffs can perform detailed tests such as substantive tests. The structured audit programme effectively reduced the amount of supervision work demanded. The workload of senior staffs is reduced whom can then concentrate on audit procedures that require more judgmental skills and experience. However, standardized audit procedures may lead to potential problem of over-reliance on past year‘s audit and turn into obstacle to the learning and training of less experienced staff.

On completing a schedule, auditor attached/uploaded the spreadsheet onto the corresponding section in the audit programme. The conclusion was copied and attached to the description under the title of the schedule. The system then highlighted this section

signalling that it was completed and ready for review. The team member was also required to ‗sign‘ for the work, indicating the identity of auditor who performed the work and prepared for the documents. This allows the reviewer to direct enquiries to the preparer.

3.4.2 Manager’s working-paper review

The manager was not with the team during the field work but came along to review the work about to be completed. Basically, the manger‘s review covers every part of work completed. Following the structure of the planned work programme, the manager systematically worked through the completed schedules.

The electronic working-paper improves the efficiency of review. The system carries out most of the computation for auditors, which largely reduced the chance of arithmetic mistakes. At the same time, it also leaves records on the system allowing the reviewer to trace and understand the work done by preparers and to assess the adequacy of support for conclusions reached, and any need for further work. Apart from checking the accuracy of computation, it was observed that the manager performed a careful check of the traces / sources of the values computed.

The observed manager reviewed the working-papers and queried the preparer for explanation. Queries the manager made during the observation period include:

‗Will you explain this schedule to me?‘

‗Have you done … ?‘

‗Where do you put them?‘

‗Have you checked it with … (a person in the client company)?‘

‗Who is this person giving the explanations here?‘

‗Is there any chance we can corroborate this?‘

These questions reflect the manager‘s concern about whether certain procedures had actually been performed, the sources of evidence, as well as the documentation of the work performed and evidence obtained.

It was observed that manager did not note down all review opinions in the review notes.

For instance, the manager asked a junior auditor to amend the interpretation of several test

results to improve consistency of the entire section. This review opinion was expressed orally without leaving any written notes.

During the observation, the manager also checked the details of the work completed during the review. When reviewing the working-paper of a sampling test of fixed assets, for instance, the manager first verified appropriate threshold was applied. Referring back to the list of all fixed assets, the manager requested sample items to be highlighted in the list and then went through the whole list to check whether the predetermined threshold had been consistently applied.

As illustrated in Figure 3.1 (p 79), the review occurs at various stages in audit and review procedures are not clearly discriminated from actual audit procedures. Thus, auditors may not realize that they are performing a review but simply following the planned procedures.

The team observed considered this review activity as a part of the audit work to justify their work to the manager. Moreover, the team also found it difficult to get fully prepared for the review as different managers have different preferences. For instance, the form of review varies depending on the managers‘ preferences. Whilst some manager may prefer justifications of audit judgments clearly stated in the working-paper, others may prefer oral explanations. Furthermore, the manager is managing a group of clients. The audit team is formed by referring to budget of the job and availability of auditors so that team members work with different managers on different jobs. This creates opportunities for junior auditors to get to know everyone in the office, as commented by the audit manager.