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don't look at audits as designed to find wrongdoing. look at them as designed to protect the management from being sued, and to allow investors and third parties to take on investments/relationsh

They really didn't.  Time was allowed for this additional work in the costing and juniors were closely monitored by the people who had done it the year before. Each of the sixty was done as throu

The issue is that the client pays for the audit and so cost does play a large part. The audit companies invariably do the audits for wafer thin profit margins, in the hope they can then sell consultin

6 hours ago, Soft lad said:

A senior auditor at another firm said that obtaining independent confirmation of bank balances was “equivalent to day-one training at audit school”. 

That's the sort of snotty comment an idiot would make.

Yes that's the theory but the practice is that answering auditor bank / debt letters is priority Z on a bank / lender list.

I have no doubt that EY would have requested balance confirmation but obtaining it is something else.  You are then reliant upon the client chasing up the third party and this can take multiple times.

Auditors in general do not hold up the publication of market information because they don't have a couple of confirmation letters back. They will take a view.

All the big audit firms are the same in this hence my calling that quoted paragraph a snotty comment.

The only major firm I, and everyone else who dealt with them closely, thought were cowboys was Anderson's who unsurprisingly went bust. I was on training with them and all the big firms would do system tests of typically sixty transactions; Anderson's were doing five.

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2 hours ago, 5min OCD speculator said:

what are you guys using to read 'subscriber content' like this?

outline.com doesn't seem to work anymore

For any FT article search for it on Google using the headline. When you click on the link to the story the FT gives you access to the story

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1 hour ago, Frank Hovis said:

.

The only major firm I, and everyone else who dealt with them closely, thought were cowboys was Anderson's who unsurprisingly went bust. I was on training with them and all the big firms would do system tests of typically sixty transactions; Anderson's were doing five.

There’s an argument that it’s better to test 5 transactions correctly than doing 60 incorrectly. An example would be testing costs. The way you’re supposed to test it is randomly select x number of transactions from the accounting ledger. Then ask someone in the accounting department to dig out the invoices. If you only do 5 then the above is what you’ll do, and expand the scope of testing if there are any inconsistencies or if the invoices can’t be found. 60 and the auditor will invariably take a shortcut and ask for the invoices file and trace 60 invoices back to the ledger. Which achieves nothing.

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44 minutes ago, Castlevania said:

There’s an argument that it’s better to test 5 transactions correctly than doing 60 incorrectly. An example would be testing costs. The way you’re supposed to test it is randomly select x number of transactions from the accounting ledger. Then ask someone in the accounting department to dig out the invoices. If you only do 5 then the above is what you’ll do, and expand the scope of testing if there are any inconsistencies or if the invoices can’t be found. 60 and the auditor will invariably take a shortcut and ask for the invoices file and trace 60 invoices back to the ledger. Which achieves nothing.

They really didn't.  Time was allowed for this additional work in the costing and juniors were closely monitored by the people who had done it the year before.

Each of the sixty was done as throughly as each of the five.  In doing sixty you were going to have a much larger spread of transactions so will pick up the oddities.

There was one dodgy guy in my year who probably didn't do it properly (rich family, work was a boring hobby) but he got caught out on one client when they mentioned that they were surprised that this year there had been no requests to see the invoices held in Italy as usually a lot were requested for checking.  The guy had just ticked them without checking, known as "phantom ticking", this was rare and usually caught out.

Why Anderson's had grown so fast and were so profitable was that they had reduced this volume audit work to small numbers for speed; they could then win bids and still make profits because they were doing less work.  As with the banks in 2008 they had done "risk assessments" to justify this but ultimately it was doing less work and less checking which caught up with them in the end.

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5 minutes ago, Frank Hovis said:

They really didn't.  Time was allowed for this additional work in the costing and juniors were closely monitored by the people who had done it the year before.

Each of the sixty was done as throughly as each of the five.  In doing sixty you were going to have a much larger spread of transactions so will pick up the oddities.

There was one dodgy guy in my year who probably didn't do it properly (rich family, work was a boring hobby) but he got caught out on one client when they mentioned that they were surprised that this year there had been no requests to see the invoices held in Italy as usually a lot were requested for checking.  The guy had just ticked them without checking, known as "phantom ticking", this was rare and usually caught out.

Why Anderson's had grown so fast and were so profitable was that they had reduced this volume audit work to small numbers for speed; they could then win bids and still make profits because they were doing less work.  As with the banks in 2008 they had done "risk assessments" to justify this but ultimately it was doing less work and less checking which caught up with them in the end.

My experience was that most auditors took shortcuts either by not doing stuff properly or simply by making stuff up. The quality of a lot of audits is shocking.

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1 minute ago, Castlevania said:

My experience was that most auditors took shortcuts either by not doing stuff properly or simply by making stuff up. The quality of a lot of audits is shocking.

I can only speak for my direct experience of doing this and when discussing jobs down the pub after generous beers.  That was absolutely not the case for the vast majority of audits at that date.

It was all done properly; though ultimately what usually brings a company down are the big estimations such as bad debt provisions that the partner has to take a view upon.

I however suspect like all professions cuts have been made in the thirty years since I was auditing and the time allowed for audit much reduced with no similar reduction in work.  That is always going to encourage short cuts - spend half a day doing it properly or half an hour shortcutting it / faking it so you can go home at a reasonable hour.

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1 minute ago, Castlevania said:

My experience was that most auditors took shortcuts either by not doing stuff properly or simply by making stuff up. The quality of a lot of audits is shocking.

The vouching of transactions I always thought was very low in the audit priority. Far more important was the the examination of the internal controls. The arranging of work so that each process relied on earlier stages being carried out properly where errors or fraud would be automatically detected. For large scale fraud to occur would require collusion and be more susceptible to detection.

 

 

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3 minutes ago, Frank Hovis said:

I can only speak for my direct experience of doing this and when discussing jobs down the pub after generous beers.  That was absolutely not the case for the vast majority of audits at that date.

It was all done properly; though ultimately what usually brings a company down are the big estimations such as bad debt provisions that the partner has to take a view upon.

I however suspect like all professions cuts have been made in the thirty years since I was auditing and the time allowed for audit much reduced with no similar reduction in work.  That is always going to encourage short cuts - spend half a day doing it properly or half an hour shortcutting it / faking it so you can go home at a reasonable hour.

The issue is that the client pays for the audit and so cost does play a large part. The audit companies invariably do the audits for wafer thin profit margins, in the hope they can then sell consulting or tax advice for fat margins. As such audit firms generally understaff their audits so either shortcuts are taken or people end up working 80 hour weeks. Having worked as an auditor and seen the shortcuts taken I take a very dim view of the whole profession.

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2 minutes ago, sleepwello'nights said:

The vouching of transactions I always thought was very low in the audit priority. Far more important was the the examination of the internal controls. The arranging of work so that each process relied on earlier stages being carried out properly where errors or fraud would be automatically detected. For large scale fraud to occur would require collusion and be more susceptible to detection.

We're going a bit far down the techncial audit route here for my taste but transaction testing and internal control testing were interlinked.

You didn't just do a test of sixty transactions straight off the bat.

First you looked for internal controls and specifically the documentation or evidence of those internal controls operating.  If you could evidence them and they were strong then you could take your testing down to maybe twenty (long time ago) but without those you did the standard sixty.

In each case if you found an error in your testing you extended it by set volumes and kept extending it if you kept fidning errors.  The worst case being that you keep finding the erros therefore the systems could not be relied upon at all so you either had to test everything and basically recreate the accounts from scratch or give a qualified audit report.

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5 minutes ago, sleepwello'nights said:

The vouching of transactions I always thought was very low in the audit priority. Far more important was the the examination of the internal controls. The arranging of work so that each process relied on earlier stages being carried out properly where errors or fraud would be automatically detected. For large scale fraud to occur would require collusion and be more susceptible to detection.

 

 

The focus is generally on the areas deemed to be high risk and/or material. 

In practice they don’t test those internal controls very well. They document the controls and ask for some examples, but they don’t actually test the systems themselves.

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3 minutes ago, Castlevania said:

The issue is that the client pays for the audit and so cost does play a large part. The audit companies invariably do the audits for wafer thin profit margins, in the hope they can then sell consulting or tax advice for fat margins. As such audit firms generally understaff their audits so either shortcuts are taken or people end up working 80 hour weeks. Having worked as an auditor and seen the shortcuts taken I take a very dim view of the whole profession.

I wouldn't recommend anyone go into it now; the workload and stress is not comensurate with the pay.

I wasn't generally involved in audits at my last place (fiannce rather than accounting) but had to step in a couple of years ago when a temp was being given a hard time by the audit senior about intangible assets.  I had to step in and point out that we didn't have any.  She apologised and said that she had mixed us up with another audit she was doing.  Given that she was working fifty hour weeks at us I found this surprising.

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15 minutes ago, spunko said:

See my thread about getting round Queue It. Works for ft.com too.

Whatever you do, think twice about subscribing.  I did and regret it.  First, you then need to subscribe more for dubious "premium" content.  Second, full of woke anti Brexit crap that has no place in a supposedly financially focussed paper.  No wonder corporations are going woke.  Third, support is quick but fail to do things like properly read and comprehend the issue.  Fourth, they insist on voluminous capatchas on sign in, as if suffering from extreme self importance.  Fifth, their stock screener has flaws as tbf do most others.

PS:  I once interviewed with EY.  The only interview I ever told the  interviewer right there that I did not want the job, any job.

Edited by Harley
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1 minute ago, Frank Hovis said:

.

First you looked for internal controls and specifically the documentation or evidence of those internal controls operating.  If you could evidence them and they were strong then you could take your testing down to maybe twenty (long time ago) but without those you did the standard sixty.

 

The most important of which was the vouching of bank transactions and checking the bank reconciliation statement. From my experience of auditors it was always given to the most junior member of the team.

I haven't read the FT article, my question might be answered in it. Where did the money go?

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7 minutes ago, Harley said:

Whatever you do, think twice about subscribing.  I did and regret it.  First, you then need to subscribe more for dubious "premium" content.  Second, full of woke anti Brexit crap that has no place in a supposedly financially focussed paper.  No wonder corporations are going woke.  Third, support is quick but fail to do things like properly read and comprehend the issue.  Fourth, they insist on voluminous capatchas on sign in, as if suffering from extreme self importance.  Fifth, their stock screener has flaws as tbf do most others.

You also don’t get the best part of the newspaper, which are the pages of share prices. If I ever buy the FT I spend most of my time staring at those pages, completely mesmerised.

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1 minute ago, sleepwello'nights said:

The most important of which was the vouching of bank transactions and checking the bank reconciliation statement. From my experience of auditors it was always given to the most junior member of the team.

I haven't read the FT article, my question might be answered in it. Where did the money go?

It was but it always checked and signed off by the senior.

I also haven't read the FT article; I suspect it's something similar to Nick Leeson where somebody with open access to the systems is able to take advantage of the fact that losses and cash income are both debits.  Your books will still balance if you label a big lump of the losses as cash; as I noted in an earlier post banks generally can't be arsed to do audit confimration letters without extensive chasing so no response woudl not have rung any alarm bells.

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