Apologies in advance for my rant. In many ways, I think SOX has made auditors dumber in the last 15 years. The emphasis (at least at kpmg) is so focused on controls that I see many coworkers lacking the common sense and technical abilities to handle complex accounting problems and understand the most efficient way to test an account. It doesn't take intelligence to test and document a management review control. We know our regulators look for expectation, precision, and other key items in MRC control documentation. Once you have the SAPA 11 language down, it's basically a regurgitation exercise. The SAPA 11 principles are great in a vacuum, but that's not how the real world works. Does the PCAOB really think that before the VP of Accounting reviews a third-party valuation of intangibles, he/she thinks, "gee, I'm going to set an expectation for what I think the WACC should be". The real world doesn't work like that and for anybody who puts that in their control documentation, I want what you're smoking! I'm sorry for the rant. :) As someone who went into auditing primarily for the technical accounting aspect, I find controls mind numbing and the single biggest hoax we peddle to the public. Feel free to hijack this thread with your own post-busy season rant. :)
Spot on. The idea of spending hours documenting pages upon pages of a control with no substance rather than spending an hour substantively testing an actual account balance is maddening. We see the dumbing-down of auditors moving up the ranks too - where senior managers instruct associates until they are blue in the face to document evidence/substance of management review and their level of precision, but don't know the debits and credits of bad debt expense and A/R allowances. (Yea, that example actually happened)
Leave before it consumes you
Also, from what I've heard the stock price doesn't respond negatively to a material weakness. So from the public standpoint there is no value add in the controls opinion.
If you're an investor, and you are told the auditor found a material weakness that would have affected the financial statements if not found, but the financial statements are still an accurate representation of the company's performance, why would you care? If my valuation formulas say the company's value per share is higher than the stock price, I'm going to buy that stock. The controls opinion only affects the resume of the individuals who work at the company.
Agree completely! I've made this argument several times myself. On all of my engagements, Internal Audit identifies 10x as many deficiencies as our team. I attribute this, largely, to the fact that they aren't as burdened by the key report, review control, and general auditing BS that we are so they can focus on the point and not focusing on fitting the clients round peg in square auditing hole.
I agree with a lot of what is said here, but I wonder at points if its more of a failure on the part of the firms to drive home that all this really excessive controls documentation should pertain only to very high risk or judgemental areas of the audit. We get caught over-documenting even in low risk areas. That said, controls won't ruin the industry. Controls are why the industry continues to be strong.
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