A Checklist For Small Audit Firm Policies and Procedures

Optimized checklists provide small audit firm employees with all of the information necessary for them to efficiently complete workflows.

Studies of behavioral research indicate that checklists may enhance fraud risk assessments by encouraging thoughtful consideration about manager responses to traditional risk-based audit approaches (Pincus 1989). They also assist in meeting documentation requirements of regulatory or standard-setting bodies.

1. Clients

As many small firms serve as local or regional accounting services providers for their corporate clients, they must recognize that small corporate clients wish to develop personal relationships with the accounting firms they hire and require continuity in staff assigned for auditing or other accounting services.

Clients typically seek a new auditor when their current firm no longer meets the company’s service needs, which could result from changes such as growth in size or complexity of their organization (such as when going public or opening international operations).

Another cause for client change may be a perception that their existing firm no longer meets their needs, either due to past audit failures or recent resource strains such as PCAOB inspections and 8-K filing deadline extensions, as well as SOX Section 404 obligations. When this occurs, auditors should work on finding other solutions for meeting client accounting and service requirements.

2. Staff

Small audit firms must also consider the needs of their staff. Small business owners frequently wish to know who will be assigned their engagement, and may prefer one member as their contact person; such a personal approach can help disprove perceptions that some small firms have inferior quality services.

Policies should be established that provide reasonable assurance that personnel refer to authoritative literature and consult timely with individuals from both inside and outside their firm when appropriate in fulfilling their professional responsibilities. Those consulted must possess enough knowledge, competence, and judgement to be useful when dealing with unusual or unfamiliar issues.

Additionally, particular attention must be given to determining if equity partners, consultants and other individuals with partner equivalent responsibilities should be treated as “partners” when assessing whether to apply the small firm exception to the rotation requirement. As per current practice at the Commission, these individuals will typically be considered partners when applying the rotation requirements.

3. Audit Procedures

Audit procedures help auditors dedicate enough time and energy to find enough evidence of financial statements for an opinion to be rendered on them. Without them, fraud detection or mismanagement might prove more challenging; but like anything, audit procedures do have their own set of restrictions and restrictions.

Likewise, firms engaging in extensive non-audit services with audit clients must carefully monitor any effect on independence that may appear as bias in order to maintain integrity of audit services and avoid potential client mistrust. It’s also crucial that they include pre-approval policies and procedures with pre-determined monetary limits in the approval processes and policies.

Communicate the value of auditing to clients. A firm can do this by emphasizing both direct and indirect benefits associated with an audit, which will help improve relationship quality as well as lower auditing costs in future, leading to a more efficient and productive relationship for both parties.

4. Monitoring

Monitoring procedures must be tailored to each firm’s size, scope and business. But all firms should conduct some monitoring activities (for instance reviewing independence confirmation results or analyzing and assessing new professional pronouncements) and document them – using something like AICPA peer review program Staff Interview Questionnaire is an efficient way to do this.

Monitoring should also include timely consultation with individuals outside the firm who possess adequate levels of knowledge, competence and judgment – such as audit and accounting experts as well as experts from industries related to clientele served by the firm.

Monitoring procedures must include an annual evaluation of the firm’s quality control policies and procedures, taking into account management philosophy, environment in which operations take place and clients, resources available as well as operations processes.