Skip to main content

Why and How Audits Must Change: Practical Guidance to Improve Your Audits

Why and How Audits Must Change: Practical Guidance to Improve Your Audits

Thomas P. Houck

ISBN: 978-0-471-46640-6

Aug 2003

240 pages

$72.99

Description

Here are the essential steps that accounting firms must take to improve audit quality. The author provides detailed coverage of important topics such as risk-based auditing techniques, analytical procedures, technology, and internal controls. After explaining why frequently used audit approaches are inadequate for detecting material fraud, the author:
  • Provides specific and practical guidance to help auditors conduct higher quality audits
  • Offers guidance to financial executives on ways to evaluate their independent audits
  • Describes the steps that accounting firms must take to implement these much-needed changes

Order your copy today!

Preface vii

1. A WAKE-UP CALL FOR ALL AUDITORS 1

“Please, Don’t Compare Us to Andersen!” 4

Fundamental Change Is Still Needed 7

Purpose of This Book 9

2. RISK-BASED AUDITING: SAVIOR OR VILLAIN? 13

Why Many Firms Resist Risk-Based Auditing 16

Progress Must Be Made 19

3. THE RISK OF “COOKING THE BOOKS” 21

General Methods of Cooking the Books 24

Why Companies Cook the Books 27

How Auditors Should Assess the Risk that a Client

Has Cooked the Books 35

Tailoring Audit Programs 47

4. OTHER RISKS AND CONSIDERATIONS 53

Ask “Anticipation” Questions 56

Perform Proactive Research about the Client’s Business 57

Perform a Diligent Preliminary Analytical Review 62

Risk Assessments During Fieldwork 63

5. THE MANY BENEFITS OF ANALYTICAL PROCEDURES 67

Quality 71

Efficiency 74

Client Service 76

Staff Morale 78

6. COMMON PITFALLS OF ANALYTICAL PROCEDURES 81

Uncorroborated Client Explanations 84

Imprecise Explanations 89

Lack of Informed Expectations 93

Setting Scopes for Variance Analyses 101

7. AN EASY APPROACH TO IMPLEMENTING ANALYTICAL PROCEDURES 103

Step One: Think Analytical First 105

Step Two: Determine the Proper Strength 119

Step Three: Test and Evaluate Results 123

Lousy Internal Controls 129

Closing Thoughts 132

8. INTERNAL CONTROL:THE MISUNDERSTOOD CHILD 135

Types of Controls 139

Minimum Audit Requirements 146

9. TO TEST OR NOT TO TEST 155

A Four-Step Approach to Testing Controls 159

Step One: Evaluate Cost-Benefits 159

Step Two: Identify Specific Controls to Test 164

Step Three: Select and Perform Control Tests 169

Step Four: Arrive at Conclusions 173

Conclusion 175

10. TALKIN’ TO THE CLIENT 177

Who Should Ask the Questions? 180

How Reliable Is the Evidence Source? 181

Do You Hear What I Hear? 182

11. DATA EXTRACTION SOFTWARE 187

Purpose of This Chapter 190

Benefits of Data Extraction Software 191

Case Study 196

How to Proceed 199

12. ACTION STEPS 207

Thinkers and Robots 209

Three Essential Steps for Transforming Your Firm 211

Closing Thoughts 227

Index 229