Auditing has changed substantially over the course of my long and not-so-storied career. I’m not talking about audits by the IRS or the Department of Revenue. I’m talking about audits by CPA firms. This is what accountants call the ‘attest function.’ An independent organization, the CPA firm, issues an opinion on the veracity of the financial statements of a company.
In the United States, an opinion is provided, while is some countries it is more of a certification that the financial statements are correct. In the U.S., CPA firms issue only an opinion, but the legal standard is sometimes almost in the nature of a surety.
When I was in public accounting, back when the Earth was still cooling, before the internet, and before personal computers, we would plan the audit, then go to the client’s office to complete the ‘fieldwork,’ which was the biggest part of the job.
During fieldwork we would test the client’s systems and do sampling of the records and that sort of thing. For example, when I was auditing, we might take the client’s accounts payable disbursements, select a sample we wanted to test, and then ‘vouch’ the documents and trace the transactions through the accounting system. By ‘vouch,’ I mean look at a paper document and confirm it agrees to the records.
It would go like this. I’d give the list I wanted to vouch to the controller. He’s point me at a file cabinet and say, “the invoices are in there, filed alphabetically.” I’d pull out file folders filled with papers, vouch them (look at them), and return them from where they came. Over and over again.
My observations and especially any unexpected results, were all dutifully recorded by pencil on lined columns of paper. This was part of our work papers.
In time, we went through samples of many of the financial records, which supported the financial statements we were to opine on. Eventually, we adjusted as necessary and issued our report.
Things have changed a bit in the last 40 years. The overall attest function has the same goals, and the end result is much the same, albeit longer due to all the disclosures that must be made.
But fieldwork has largely gone away. I know this because now I’m on the other side, doing audit support for my clients. I’ve done quite a bit of this over the last fifteen years.
Audits are now paperless and virtual. Samples are selected and documentation is still vouched, but rather than the controller pointing me at a file cabinet, the auditor is in a different city, and I’ll never meet them in person. Documents are provided in electronic form. An invoice copy is simple if it is already in the system as a computer file. If not, it is scanned.
Often, payment of AP or receipts of AR are traced through the bank account by providing an electronic copy of the bank statement. The relevant transactions can be highlighted using an Adobe tool. All the documents are uploaded to a cloud site set up by the auditor.
While this seems pretty simple for the auditor, and the documentation is all there in the permanent record, the client and their CFO (that would be me) really have to spend a lot of time to collect, notate, and upload all these documents. My impression is that for the client being audited, the new way of doing audits takes more time than the old way.
Drafting of the reports and sending information back and forth are vastly more convenient with this new way of auditing. But the documentation seems like it was easier when I had my spreadsheets and was pointed to a file cabinet full of paper.
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