Florida Government Finance Officers Association

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Florida Government Finance Officers Association

• Techniques for Quality and Effective Audits
• June 13, 2006

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Session Objectives

• Identify driving forces influencing the conduct
  and measurement of financial statement audits
• Identify key ingredients of quality audits
• Discuss typical software and internet tools to
  enhance audit quality
• Identify best practices for auditees and auditors
  to enhance quality of audits

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Driving Influences Affecting Audits

• Basic Auditing Standards
• Yellow Book Additional Requirements
• Single Audit Additional Requirements
• Other Additional Audit Requirements
• New Audit Risk Assessment Standards
• Financial Statement Audit Scope

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Basic Auditing Standards

• General Standards
• Technical training and proficiency
• Independence
• Due professional care
• Standards of Fieldwork
• Work is to be adequately planned and supervised
• Understanding of internal control to determine
  nature, timing and extent of tests
• Sufficient, competent evidential matter

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Basic Auditing Standards

• Reporting
• State whether financial statements are in
  accordance with GAAP
• Consistency standard
• Adequate disclosure
• Opinion on the financial statements

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Yellow Book Additional Standards

• Florida requirement in Rules of the Auditor
  General for all Local Government audits
• Required for all Single Audits
• Include additional continuing education
• Consideration of compliance matters
• Additional communication requirements
• Reporting on internal control and compliance

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Single Audit Additional Requirements

• Both state and federal requirements
• Opinion on each major grant
• Opinion on each compliance requirement applicable
  to each major grant
• Compliance and internal control understanding and
  testing applicable to each compliance requirement
  of each major grant
• Specific reporting requirements

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Other Additional Audit Requirements

• Rules of the Auditor General
• Attestation standards for special reports
• Specific industry requirements

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New Audit Risk Assessment Standards

• Standards 104 through 111
• Effective for periods beginning 12/15/06
• Provide guidance for assessment of risks of
  misstatement
• Guidance for planning and supervision, nature of
  audit evidence and evaluation of audit evidence

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New Audit Risk Assessment Standards

• Enhance understanding of entity and its
  environment
• More rigorous assessment of risks of material
  misstatement
• Improved linkage between assessed risks and
  nature, timing and extent of audit procedures

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Financial Statement Audit Scope

• Opinion on basic financial statements is an
  opinion provided for both the governmental and
  business-type columns in the entity-wide
  financial statements, each major fund, aggregate
  discretely presented component units, and the
  aggregate remaining financial statements.
• Materiality established by opinion unit
• Audit procedures are established to support an
  opinion on each opinion unit

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Financial Statement Audit Scope

• If the scope of the audit is expanded to cover
  each fund, materiality must be calculated for
  each fund and audit procedures must be
  established to support an opinion for each fund.
• All audits are to include an understanding and
  assessment of the internal control environment as
  it relates to information included in the
  financial statements.

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Financial Statement Audit Scope

• Financial statement audits under Government
  Auditing Standards include consideration of
  internal control, compliance and other matters.
• Reportable conditions and material compliance
  matters are separately reported.
• Auditor General regulations and Government
  Auditing Standards require additional disclosure
  of internal control matters and compliance
  violations that are not clearly inconsequential.

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Measurements of a Quality Audit

• Perspectives
• Government staff, management and governing board
  perspectives
• Auditor perspective
• Regulatory agency perspective
• Public perspective

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Measurements of a Quality Audit

• Quantifiable measures
• Timeliness
• Findings of third party reviews
• Comments provided in auditor reports
• Retention of professional relationship
• Quality of financial statement presentation

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Measurements of a Quality Audit

• Intangible Measurements
• Informal assistance and advice provided
• Ease of doing business
• Manner and extent of communication
• Number and level of surprises
• Teamwork and chemistry
• Experience and expertise of personnel
• Understanding of the business

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Measurements of a Quality Audit

• Other measures
• Working paper documentation
• Identification and addressing of risks and other
  key issues
• Internal control and compliance matters
• Comprehensiveness and clarity
• Adequacy of planning and time allocated to
  perform functions
• Ease of burden on associated personnel

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Key Ingredients of a Quality Audit

• Personnel expertise and capabilities
• Time availability and priority
• Effective communication throughout the process
• Ability to effectively address change
• Understanding of the business environment,
  including internal control
• Effective risk assessment and awareness of
  potential problems
• Effective audit processes, including information
  technology
• Effective teamwork

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Key Ingredients of a Quality Audit

• Personnel expertise and capabilities
• Upper management involvement throughout
• Specialized expertise of auditors
• Understanding of auditor and auditee personnel
  strengths and weaknesses
• Training and development
• Access to and use of resources for knowledge of
  accounting and audit requirements
• Ability to focus and stay on top of engagement

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Key Ingredients of a Quality Audit

• Time availability and priority
• Early understanding and coordination of timing
  expectations among all parties
• Early focus on planning, including timely
  engagement contracts, audit and accounting issues
  and reporting
• Assessment of close-out procedures to reduce
  delays and enhance effectiveness
• Timely completion of auditee information requests
  and timely report preparation

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Key Ingredients of a Quality Audit

• Effective Communication
• Between organizational units to identify and
  address issues
• Coordination of audit and accounting issues with
  auditors in planning the audit
• Providing expectations and assessing performance
  in relation to expectations
• Coordination of audit timing and allocation of
  responsibilities

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Key Ingredients of a Quality Audit

• Addressing Change
• Awareness of new transactions within the
  organization
• Awareness of new compliance requirements
• Awareness of non-cash transactions and agreements
• Awareness of new accounting and audit
  requirements
• Awareness of personnel changes and related
  ramifications

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Key Ingredients of a Quality Audit

• Effective Audit Processes
• Effective use of software
• Healthy skepticism
• Understanding of operating activities in the
  business and various organizational units
• Time line that allows adequate time for personnel
  to perform functions
• Teamwork and communication between auditors and
  government personnel
• Healthy skepticism that questions processes and
  dispositions
• Awareness of issues and the possibility of issues
  

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Key Ingredients of a Quality Audit

• Effective teamwork
• Establishment of timelines, responsibilities and
  means of regular communication
• Starting the process early and allowing adequate
  time to perform functions
• Communication of changes and other matters of
  significance as they occur
• Resolution of issues during interim
• Constant assessment of ways to improve

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Software Tools

• Accounting and auditing research engines
• Trial balance software
• Financial statement preparation software
• File interrogation software
• Sampling software
• Excel and word files

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Internet Tools

• Search engines will allow finding of most web
  sites pertinent to needs. Many topical matters
  can be located, with considerable helpful
  information available
• Internet sites are now available to confirm
  information related to transactions with other
  governments, to research accounting and auditing
  requirements, and to research best practices in
  selected areas

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Best Practices for Quality Audits-Auditees

• Utilize a structured process to ensure auditor
  expectations are understood, timelines matters
  are monitored, and issues are communicated and
  addressed
• Begin the planning process early, including
  auditor meetings-bid processes should be early in
  year
• Communicate regularly and often to enhance
  awareness and resolution of issues
• Ensure there is a good understanding of
  nonsystematic transactions and activities of
  various organizational units that may effect the
  financial statements

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Best Practices for Quality Audits-Auditees

• Assess the impact of change as early as possible
  and anticipate the unexpected when establishing
  timelines and procedures
• Maintain high levels of involvement among
  experienced team members throughout the process,
  including assessment of internal control and
  compliance matters
• Assess best use of software capabilities to
  enhance efficiency and avoid duplication of
  efforts

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Best Practices for Quality Audits-Auditees

• Schedule project completion well in advance of
  due dates to allow for the unexpected and to
  ensure adequate time for auditor completion and
  review
• Prepare auditor requested information in
  association with year-end closing, including
  analysis of general ledger accounts, to ensure
  information is correct and is supported

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Best Practices for Quality Audits-Auditors

• Plan early and comprehensively, preparing to the
  extent possible
• High level of involvement by knowledgeable
  management team, including timely supervision and
  review of work performed
• High level of communication with key client
  personnel, obtaining regular assessments relative
  to expectations

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Best Practices for Quality Audits-Auditors

• Adequate time and trained personnel allocated to
  various phases of the audit, including review and
  wrap up
• Comprehensive risk assessment, including
  understanding of the business and control
  environment, understanding and assessment of
  internal control, understanding of nonsystematic
  transactions, understanding of competencies of
  client personnel, awareness of where audit and
  accounting issues may exist, and awareness of
  change

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Best Practices for Quality Audits-Auditors

• Assessment of the best use of software
  capabilities, including an understanding of
  client software capabilities and how such
  capabilities can best be utilized
• Ensure access to and use of resources, including
  audit and accounting literature, regulatory
  guidance, personnel in regulatory agencies,
  internet tools, etc. Utilize these resources to
  support audit and accounting dispositions
• Awareness among audit team members regarding
  communication channels, responsibilities, client
  and engagement team expectations, timing, risks,
  tools and resources, competencies of client
  personnel, etc.