Linford & Company Methodology: Drafting the Audit Report Early

Posted by Dan Zitting on Sep 5, 2010 in Blog | 0 comments

At L&C, we do two types of audits… SAS 70 audits and royalty licensing audits. Both of these are very different from the audits the clients of most accounting firms are accustomed to going through (such as financial statement audits). While the functional differences are obvious, one key difference that has a profound impact on the success and efficiency of the audit is widely unrecognized by most auditors and audit firms. With a financial statement audit, the client understands very clearly what the outcome of the audit will be (a set of financial statements and the accompanying audit opinion). However, with SAS 70 and royalty audits, the client rarely really understands what the outcome/results will actually look like, particularly when they are a first time auditee.

This uncertainty is an uneasy feeling for clients, and we recognize that. No matter what level of explanation was provided in the sales and planning processes, there is simply no replacement for seeing the “real” results on paper. While many firms over-plan and over-analyze throughout the first phases of their audits, we get to work on making the results “real” so that both the client’s team and ours can see the end goal and then work backwards. In the case of SAS 70 audits, that means providing a draft of the SAS 70 report very early in the engagement, prior to the majority of control testing if possible. In the case of royalty audits, it means providing a scrubbed example of the royalty calculation report we typically prepare along with an example of the cleansed sales data we need to support that report. The extent to which these items immediately clarify what the client should expect from the audit process is incredible.

We always continue to carefully refine our audit processes but we think the functional approach we use based on this “results-first” methodology is one of the factors that leads us to the continually effective and efficient results we realize on our audit projects. The purpose of an audit is to determine an auditee’s compliance with a known standard of measurement. Drafting results early ensures the client actually knows and understands that “known standard of measurement” (just like how financial statement audit clients know the standard of measurement is GAAP).

NOTE: If, instead of an auditee, you are an auditor interested in exploring results-first audit execution further, get started by checking out the Audit Fuel audit execution framework.