This can be from the point of view of external auditors, clients, certification bodies, quality manager and those who has experiences in quality auditing.
Hi Roslina,
External auditors do not generally understand the in's and outs of the day to day processes ran in an organisation. However, although this may seem like a disadvantage, it is could be considered an advantage as they can look at the process with a fresh eyes perspective and without prejudices.
There are other issues but all could be spun into advantages and disadvantages. i.e. they do not know the auditee and therefore haven't built rapport with the auditee. Having good rapport with the auditee may make them more open and honest during the audit. However, an internal auditor with good rapport with an auditee may be more lenient during the audit. Where as the external auditor doesn't necessarily have that relationship with the auditee so can be more objective.
I think one issue is that the competencies are sometimes unclear and open to interpretation. One internal or external auditor may consider a competency one way and a second auditor may consider it in a completely different way and require alternative evidence.
Message me if you would like to discuss further.
Best Regards
Martin
In recent years due to the well-known crises that arose due to the different "bubbles", it has become clear that the internal control and risk management systems did not always work properly, and the external auditors were not able to identify these shortcomings functionalities in companies. For these reasons, the auditor must have the analytical capacity to know how to identify and describe the risks assessed and incurred by the audited companies. The aim is to analyze and review the methodologies and procedures by which risks are measured and controlled in order to better assess the critical situations of companies.
Regards
PM
I am responding to this question from the perspective of an internal auditor.
One real example comes to mind in answering this question.
Approx 1998 when I was head of internal audit for a company I discovered $10 million in a current account earning zero interest. With interest rates at that time, this could have been earning $10m x 8% = $800,000 per annum, enough to pay the then salaries of both the CEO and CFO put together.
Somehow the CFO and head of treasury had missed it (to their shame). I asked the Big4 accounting firm why they hadn't drawn it to our attention as I knew they had covered this operation in the external audit.
The response: "Because it was correctly reported in the financial statements." As they saw it, that was the END of their responsibilities. Even though the lost interest that was being forgone was a material amount.
So I reported it as an internal audit finding and material corporate opportunity. The CFO nearly fell off his chair in surprise and I was bountifully rewarded.
That was my first head of internal audit role. In every subsequent HIA role, I have always found the external auditors take a very limited view of their responsibilities.
As an external auditor one should be equipped with all competencies required with the position. Then at the beginning of the audit the external auditor should check the financial statements and determine the risk audit areas i.e.Inventories, accounts receivable, cash and banks, fixed assets or other assets. Then organize its compliance tests accordingly giving more weight to risky areas. Also, the materiality treshold should be determined at this stage. Based on the outcomes of compliance tests substantive tests should be organized and conducted. Materiality figure can be changed during the audit. To be on the safe side all amounts on the balance sheet 1/2 of all material amounts must be audited. Audit progress must be checked during the audit by proper supervision. During the audit a working trial balance should be updated as adjusting and reclassifying entries arise. Final financial statements are prepared based on the working trial balance.
The main weakness of a majority of external auditors (public accountants) is the that of "Identifying and Assessing Risk of Material Misstatements through Understanding the Client and the Environment it Operates". This involves PESTLEE and SWOT Analysis. This easier said than done. Auditors do not usually seek information from courts, credit bureaus, investigative authorities etc on the board of directors and senior managers to evaluate potential criminal activities of the directors which have significant impact on the authenticity of financial statements.
In developing countries' perspective, external auditors lack IT audit skills which is essential to carry out the audit effectively in the changing digital environment. There is still a knowledge gap between financial auditor's skills and IT auditor where each has specialization from two different fields. For effective audit today, auditors need to have CPA/ACCA and CISA qualifications or related technology based skills.
Great question here, which may serve for qualitative research persuasion because the possible answers varies from one business environment to the other.
As regarding knowledge, the business world is ever evolving and with rapid sensation. Most of the auditors lack the relevant knowledge of the unfolding dynamism in the business environment, especially as fintech seems to takeover many business transactions the audit procedures may need to be more technological-tilted. There is no really one-cap-that fit all in approach, hence the need for knowledge versatility. Experience count in audit services so as to view evidence from diverse perspectives.
On the area of Skill, many auditors lack the required self motivation and confidence, there is no meticulous attention to details in obtaining sufficient appropriate audit evidence and no much interest in mathematical calculations as required in financial system and related problem-solving skills. There is need to go extra miles in audit to meet deadlines without compromising quality.
As regarding the relevant attitude, there is common destitute of professional skepticism. This is quite seen in engagements with high fee and familiarity blemish.
I believe this piece helps.
Regards
Okey Udo
Thanks everyone for your inputs. This question is related to quality system auditing. However, we could also learn from financial audit perspectives provided.
One of the attributes lacking from EA is patience. Some skills that need to be improve are communication and relationship skills.
