Vignette 3: Auditing Is a People Business

Introduction

This tutorial provides a step-by-step guide based on the video vignette "Auditing Is a People Business." It highlights effective communication strategies, the importance of collaboration in auditing, and how to navigate discrepancies in financial statements. This guide is particularly relevant for audit professionals and students learning about audit dynamics and practices.

Step 1: Establish Clear Communication

• Begin discussions by acknowledging the hard work of the audit team.
• Schedule time to review critical financial metrics, such as the income statement analytics.
• Focus on significant variances, particularly in marketing expenses, which are unexpected based on prior strategies.

Step 2: Analyze Financial Discrepancies

• Identify discrepancies in the financial data:
  • Marketing expenses reported a decrease of 5% and 13% for the quarter and year, respectively.
  • Compare this with the company’s strategy which indicated an expected increase in marketing spending.
• Gather relevant information from recent board presentations and earnings calls to support your findings.

Step 3: Collaborate to Resolve Issues

• Propose setting up a meeting with key stakeholders, such as the marketing department.
• When facing challenges, consider sending an email to request a meeting rather than relying solely on email communication.
• Maintain a sense of urgency to resolve discrepancies before critical deadlines, such as earnings calls.

Step 4: Verify Financial Data

• Run reports to check the accuracy of financial data:
  • Ensure numbers align with general ledger entries and trial balances.
  • Check for late adjustments that may affect the reported figures.
• If discrepancies persist, communicate with relevant personnel to clarify and resolve issues efficiently.

Step 5: Conduct Face-to-Face Meetings

• Whenever possible, opt for in-person discussions to address discrepancies. This fosters better understanding and quicker resolution.
• Prepare for meetings by bringing necessary documents to facilitate discussions.

Step 6: Investigate and Document Findings

• After identifying discrepancies, work with relevant teams to trace the source of errors, such as misclassified expenses.
• Document any findings and proposed solutions thoroughly. This should include:
  • A memo detailing the investigation process.
  • Steps taken to correct errors and ensure accuracy in future reports.

Step 7: Review Internal Controls

• Analyze the effectiveness of internal controls that may have contributed to the erroneous reporting.
• Investigate whether the error was due to flaws in control design or operational execution.
• Prepare a separate memo outlining findings related to internal controls and recommendations for improvements.

Conclusion

This tutorial emphasizes the importance of effective communication, collaboration, and thorough investigation in the auditing process. By following these steps, audit teams can navigate financial discrepancies efficiently and maintain accuracy in their reporting. Future steps may include implementing stronger internal controls and continuing to foster open communication within the team.