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New world

I've posted a few blogs earlier on this new world that we live in. This is a world where we're auditing for the regulators (PCAOB) instead of auditing for investors. We're auditing in fear of the PCAOB or our internal reviews finding something instead of auditing using a sense of reason. This is an era of upheaval that, from my understanding, harkens back to when 404 was first implemented. There is a sea change going on at the Firms because of the new PCAOB demands. It's certainly painful for the people implementing this now, but it'll be fascinating to see if this changes. Once the dust settles on this internal control rehaul, will the PCAOB choose a new battle to fight that will cause another upheaval in the near future. The PCAOB is turning into a dangerous animal, especially since it's backed by the government and is paid for by the private sector (mandatory PCAOB fees for all issuers). With that kind of funding, and with teams dedicated to different accounting firms, what is the incentive for them not to find new issues every years in order to prove their usefulness. Now, don't get me wrong, some of the "clarifications" by the PCAOB of its standards makes sense. You'll hear from most partners informally that the PCAOB is neither just right, nor too much, but somewhere in between. The Firms are certainly pushing back against the PCAOB, but they aren't winning all the battles, and so the auditors have to bear the burden of the battles they lost. Until the SEC conveys this message to the clients instead of the audit firms, there will continue to be even more hostility shown by the clients towards the additional requirements we're asking to be implemented.
The problem with this, for many of the individuals working at the Firms, is that the burden falls on us. This leads to increased hours and increased stress, with the rewards not increasing in proportion. Our fees are not increasing proportionally with our hours, leading to more stress on profitability. A majority of the partners believe that this is just a cycle, and that we will revert back to the mean soon. They may be right,since they've spent more years and have seen several more cycles than us. What is interesting is that since many managers and snr mgrs haven't experienced something like this, they're dealing with the unknown and do not expect this to go away, leading to many of them looking to go away. At the same time, the new blood at the Firms wouldn't know anything else, and it could only get better from here. All in all, the audit factory continues to churn, like it always has.


Comments

Anonymous said…
I really enjoy your posts and I can relate to many of your experiences even though we are 8,000 miles apart.

I've always questioned the future of this industry because of the reasons you stated above. Auditor's purpose has altered quite a bit from its original creation.

How do you see the future in this industry, say 5 years down the road? Hours are inevitably longer, and pay may never catch up to the hours worked since no one ever agree on the fee inflation. All of our work are statutorily based, and we are never really adding too much value that will generate revenue for the clients in my opinion.

Is it better to switch out to other areas of the firm like non assurance services where it may be more meaningful?
Nana said…
I have a question - how do you deal with auditees (especially those who have prior audit experience and therefore think that they know everything) who question your audit methods?

I could explain my audit methods, but I don't see why I should, and it seems like the client is just being difficult for no reason (or to stall for time).
BartekKozlowski said…
This comment has been removed by the author.
Anonymous said…
Your blog is most interesting. There is nothing like that in where I come from. I am wondering if you could relate to my experiences. I am CPA - equivalent in rather small regional audit practice in a country in Middle Europe. Locally, big four companies are considered top experts in audit, excelling in larger companies audits. But they also do smaller and mid size companies. They do it charging much more in fees than mid tier companies not to mention smaller regional auditing firms like the one I work for. Once or twice our paths crossed. Me a CPA doing a statutory audit and audit teams of 2-3 people at their 20s doing an audit of a consolidation package of the same client. I sometimes audited the same client the next year after it was audited by a Big four. Well, the clients' comments apart (young clueless people stressed to do the job they don't understand), I was not really impressed. One client had to go through major fundamental error adjustments. I can't believe the partner or manager at Big 4 was unaware of the omission or maybe he didn't care to understand. It could be this type of reckless approach that led to big accounting scandals. Some companies cooked their books for years while they were being audited even though it was very easy to see how they did it. I think that there is too much time being spent on procedures, "planning" and creating volumes of files, doing stuff complicated beyond understanding and too little in trying to understand how a client is trying to fool you knowing the young blokes just don't get the sh#$$#. Don't you think young associates should first gain some industry experience before they join audit firms?
Vp Associa said…
This is an intresting blog that you have posted you shares a lot of thing about Chartered Accountants London, Audit Accountants.Thanks
In addition to the burden and stress of documentation demands and compliance with PCAOB, I'd like to emphasize that the most burdensome part is that lack of adequate time to turn around the new implementations. Several firms (including my own) who received comments back from PCAOB as late as May/June, are expected to implement new templates, documentation standards, and additional procedures by Planning deadlines. Keeping in mind, that by summertime, most engagements have already created budgets, planned resources and discussed fees with client. I think it might be more beneficial and efficient if there was more time to adequately implement and prepare the firms for remediation of findings in future audits.
Juan Dorado said…
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