AICPA ENGAGE - Key Takeaways - Part 2
In my last post, AICPA ENGAGE Conference – Key takeaways – Part 1, I discussed the first three key takeaways relevant to all US CPA firms, and mostly relevant to those outside the US. Here I will run down my remaining key takeaways from the four-day super conference.
If you missed my last post, catch up here
4. Risk assessment
Another session I attended during AICPA Engage was on risk assessment. The speakers were incredibly passionate, making the case for change. I.e., to move from “beating up the balance sheet” to focusing more on risk assessment.
It was surprising to me how many people on the live poll from AICPA Engage (over 50%) shared that their audit approach did not promote thorough planning and risk assessment procedures. Instead, they largely defaulted to performing the same substantive audit as last year. Often starting the testing before even completing the planning!
Issues highlighted with “just filling in the risk assessment form” in the methodology included performing work on areas posing no risk, and missing areas such as unrecorded liabilities. This heavy substantive audit approach is causing issues developing and retaining staff.
I hope I don’t need to sell the benefits of planning BEFORE you start working. Just think about the idea of going on holiday without booking the hotel before you arrive, simply turning up would not guarantee you a room.
And if you need more quantifiable evidence to make a change, 25% of peer review MFCs in the most recent cycle related to AU-C 315, and 16% to AU-C 330.
SALY (Same As Last Year) was mentioned a number of times, but I also learnt some new abbreviations:
· DILY = Did It Last Year
· MILY – Missed It Last Year (!)
Changes to 315 (mentioned below) target this area. But firms would be smart to consider methodologies which promote stronger planning and risk assessment over form filling right now to avoid these common peer-review pitfalls. And using data analytics to perform smarter risk assessment procedures is a clear opportunity. Check out this free guide on how to improve risk assessment
5. Standard changes are coming
Several quite impactful changes are coming in audit standards. A few of the more significant ones include:
· SAS 143 – changing AU-C 540 regarding accounting estimates
· SAS 145 – changing AU-C 315 regarding identifying and assessing risk
· Quality management – requiring development of a system of quality management
Firms have a little time, with SAS 143 and 145 both effective for December 2023 client year ends. But these changes are significant and there will be advantages to early adoption.
Internationally these standards are being implemented ahead of the US. Changes to 540 caused firms headaches over scalability and performing appropriate levels of work on accounting estimates on smaller audits. Changes to 315 require a different but far improved approach to risk assessment. The spectrum of risk concept is new but intuitive, and the changes more broadly should support peer review challenges in the US market around risk assessment.
Quality management requirements must be addressed before December 2025. But there are big advantages to early adoption. And US firms performing international engagements need to comply with the international timetable to implement by December 2022.
While more sophisticated, a lot of the quality management requirements are a formalization of the quality control procedures firms will already have in place. The monitoring and maintenance is more advanced though, and will require increased effort throughout the year.
Most firms will be reliant on methodology and content providers to support their 315 and 540 changes – something at Inflo we have already made available in our audit methodology supporting firms wishing to get ahead. The design and implementation of a system of quality management is going to require technology (not a spreadsheet).
6. Dynamic Audit Solution (DAS)
After more than 4 years of hype around DAS I was expecting the AICPA Engage event to be when we’d see big launch activities. But there was very little. A 20 second mention in the main keynote and loose references across the conference, but nothing of great substance.
Which is surprising given in April ’21 the “main commercial release” was expected in summer 2021. The latest position at ENGAGE was targeting a “limited commercial release” by the end of 2022. Supporting only 2 industries, it is going to be challenging for firms to seriously consider implementation even in 2023/4.
Firms are wrestling with huge challenges in their audit businesses caused by talent shortages and technology which is past it’s best. One presenter at ENGAGE made the analogy regarding the Nokia 3210 and the comment that like cell phones, no-one is using technology from 2007. One CIO of a top 20 firm looked across to me and commented “she should see our audit platform…”.
More than 1 of the larger firms who invested in DAS was openly sharing at ENGAGE that they are moving on and taking another path. Firms who haven’t invested seemed unimpressed by the progress and what they have seen of the product so far.
The landscape has significantly changed since this initiative was conceived. Firms are no longer torn between 2 or 3 large, slow, incumbent providers. There are new, intuitive, data driven audit methodologies and platforms available which provide off-the-shelf gamechangers AND the ability to customize to your firm’s methodology or needs. Check out our Definitive Digital Audit guide to learn more about what’s possible.
7. Quality Management
Given the ink is still wet on the approval of the quality management standards in the US, it was great to see how much coverage there was of quality management.
There is a lot in these standards, namely the need to design a quality management system and a monitoring process. The design of the quality management system is the key first step, which includes:
1) Establishing quality objectives,
2) Identifying and assessing quality risks, and
3) Designing and implementing responses to those risks.
There are many resources available on the AICPA website. If you want to quickly understand the quality management standards check out this guide: The changes that are coming and how they will impact audit firms.