We have presented and discussed the new standard with practitioners in several venues and forums over the last year. During these sessions, a few practitioners have asked us why we believe this change is substantive. The profession will publish new checklists, the engagement file will be rolled forward, old checklists will be exchanged with the new, leaving the rest of the file relatively unchanged.
Voila, new standard implemented! Right?
You only need to ask a firm who performs audit engagements how effective a similar transition plan was when the Canadian Audit Standards (CAS) were adopted.
The Canadian Auditing Standards were implemented in 2010. Yet, here we are in the seventh year of application, with virtually no changes in the standards, and key compliance issues continuing to arise.
We are not talking about the professional difficulties in defending critical judgements or decisions auditors must make; we are talking about a fundamental acceptance of a risk-based audit approach or a firm’s methodology. You only need to ask a firm who transitioned to the CAS about their experience to appreciate the importance of a fundamental understanding of any new standard.
As we look towards the implementation of CSRE 2400 late 2017 / early 2018 we want to learn from the mistakes made during CAS implementation. Here are some of our observations:
- A transition is not complete by updating checklists.
Updating checklists is not the full extent of a transition. If this approach is taken, the firm is likely to experience the following:
- The engagement file is rolled forward.
- New forms and checklists are added, mainly to the front planning sections of the file.
- The file is completed as it has always been, and we are comfortable as we are with our old friend SALY (Same As Last Year).
The result? Additional time spent on the file with none of the benefits of a risk-based review engagement standard.
- A significant investment in understanding and agreeing on firm interpretation of each requirement will reduce costs in subsequent years.
Junior staff often find review engagements difficult to execute. The degree of professional judgement required, as well as the significant variation in work effort from engagement to engagement and partner to partner, makes it difficult to determine the extent of procedures to be performed. Partner preferences or differences of opinion lead to inefficiencies in file preparation as staff tries to navigate what the expectations are related to work effort and required documentation in a review engagement.
- Partner and senior staff training is critical.
Ensure that all partners and senior staff understand the methodology of the new standard. Time spent training junior staff can be wasted when staff is advised otherwise on an engagement-by-engagement basis. A new standard is a good opportunity to drive firm consistencies.
- Engagement planning should not be an afterthought for compliance purposes.
In general terms, just like the CAS, the new review engagement standard will require many firms to spend additional time on the front end or planning sections of the file, documenting the client’s procedures and processes. This work effort has no chance of identifying areas of likely misstatement or directing the review engagement procedures when it is a backfilling exercise. The goal is to ensure that this is done well in the first year so firms can gain efficiencies in subsequent years.
Looking for more strategies and timing recommendations to help your firm navigate and complete training for CSRE 2400? Download Clearline Consulting’s Special Report: CSRE 2400: The New Review Engagement Standard – Implementation.
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