Quality of auditor activity

Analogous to accounting entities underlie to the mandatory or voluntary review of final accounts on the part of auditors, the auditors themselves are also being reviewed - checked whether they fulfil their duties stipulated by law. This check is being performed by the Chamber of Auditors of the Czech Republic.

At the turn of March and April 2015, in our company Fučík & partneři, s.r.o. a check was made focused on the auditing processes, procedures used by us, and on the documentation, resulting in a positive result without finding cardinal deficiencies. Unfortunately, this fact is not always a rule in the auditing profession. In 2014 the Chamber of Auditors of the Czech Republic published the most frequent cardinal deficiencies found from checks made by other auditors and audit companies. Their below stated listing gives you at the same time an opportunity to peep into the depth of auditing processes which our company has to perform, process, evaluate, and after that only the audit´s results are presented to the client.

Cardinal deficiencies found during the auditor's checks

1. Provative information – missing or insufficient documentation proving the performed auditing activity – for example documentation on the participation of the auditor on the physical stocktaking of inventories or assets.
2. Selection of samples – missing documentation on the selected method of selecting samples of accounting transactions and documenting the evaluation of their results and the application of conclusions on the whole basic tested file.
3. Approval by external entities – unconvincing documentation in the case of using another method for the approval than approving letters are, and further insufficient evaluation of received approving letters.
4. Reaction on the assessed risks – non-stating or insufficient stating the way in which the auditor proposed and performed audit procedures in the reaction to the assessed risks.
5. Frauds – insufficient documentation on the way of judging the risks of frauds and related communication with the company management of the client, his statutory bodies and persons entrusted by the management.
6. Application of the significance level – only formal stipulating of the significance level whose correct defining is important for assessing the risk, selection of samples, evaluation of auditing procedures and evaluation of incorrectness.
7. Documentation of the audit – missing or insufficient documenting of tests of the material correctness, it involves for example assessment of the material correctness of an invoice, that means whether it was issued and posted in the correct period, in the correct amount and for the granted supply to which a legal reason exists.
8. Assessment the incorrectness - found incorrectness within the auditing procedures are not judged from the standpoint of a possible influence on the total accounting balances.
9. Conditions of auditing orders – missing mandatory essentials of the contractual agreement between the auditor and the client.
10. Identification and risk assessment – insufficient documentation of judging the internal control system, information system of the accounting entity and hand-over and gaining knowledge/information on the accounting entity.
11. Analytic procedures – auditors do not always document proposed and afterwards performed analytic procedures at the end of the audit which should help them for the entire auditor´s view.
12. Written declaration for the auditor – the frequent deficiency is the incorrect dating of the given declaration.
13. Legal regulations – missing information on the familiarization of the auditor with the client´s legal regulations which he is obliged to follow and the related evaluation of possible risks, impacts.

To conclude…

Auditor, as an expert in his field, is obliged to observe stipulated regulations and to perform his activity with due care so that it does not contradict the legislation and good manners. In this regard it is necessary so that the accounting entity by which a check by the auditor is made, realizes, that if the auditor requires from it the submission of individual materials and information, then in case of a good auditor it isn´t his vanity, but a material based on which the auditor decides whether the final accounts (or other related documents) give a true and honest view of the bookkeeping or not. At the same time, the auditor is also obliged to document the whole process of his auditor´s work that means to record all materials and information from the moment of agreeing the order, over planning and the audit performance, up to the final work leading to the issue of the audit opinion.

The high-quality audit delivers to the company the trustworthiness of presented information outwards and based on the auditor´s recommendation and the identification of risk areas it has a possibility to take steps inside the company.

Source: journal “Auditor”