Tax & AccountingOctober 04, 2021

A Deep Dive into the Value of Audit Diagnostics

By: Wolters Kluwer Tax and Accounting

When you think of audit diagnostics, do you imagine red light/green light system alerts that warn about missing items on your checklist or missing signoffs? That is certainly one role of diagnostics, but the right audit diagnostics solution adds much more value for auditors. 

Recently, Wolters Kluwer presented a webinar titled “Diagnostic Deep Dive.” Mona Dickerson, National Assurance Director for CohnReznick, joined Wolters Kluwer’s Andrea Hearn to explore all of the benefits audit diagnostics deliver to firms, using CCH® ProSystem fx® Knowledge Coach for examples.

Keep reading to learn how CohnReznick is leveraging diagnostics to help deliver data-driven audits and better peer review.

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The Value of Diagnostics in an Audit

It takes years of hands-on auditing work to become completely proficient and deliver the highest quality audits. Adding to the complexity of the task at hand, auditors must adapt to continuing changes in the applicable standards. It takes a lot of reviewing within firms to ensure nothing falls through the cracks. You can think of a good audit diagnostics solution as a “pre-review” reviewer. It can help your auditors plan and conduct a better audit, and it also highlights any missing items that need to be added to the file before it goes to review.

CCH® ProSystem fx® Knowledge Coach has diagnostics that help auditors assess the quality of their answers and whether or not risks have been linked correctly to substantive procedures. Subject matter experts develop these diagnostics with deep domain knowledge of audit practices, and the applicable standards auditors must comply to.

Knowledge Coach elevates efficiency throughout the audit process. Mona Dickerson explained two ways it has enhanced audit efficiency at CohnReznick. First, during review, a manager, partner or quality control partner often identifies something that needs to change.

Before Knowledge Coach, the auditor would have to go through all the forms to make sure all the answers were changed, and everything remained properly linked to avoid any contradictory evidence in the work. However, Knowledge Coach is an intelligent, interactive, linked system.

Now, Knowledge Coach takes an answer change and flows that answer throughout the forms, alerting the auditor to things they forgot to answer, a much more efficient process that saves a significant amount of time.

The second area of efficiency that Knowledge Coach delivers for CohnReznick is tailoring the procedures to fit the audit. The system follows the best practices and guidelines put into place while removing the need to go through every inapplicable procedure and marking n/a. For example, after completing the risk assessment, if an auditor is going to audit cash, Knowledge Coach gathers their assertions by asking questions and creating a program with the applicable procedures.

How to Incorporate Diagnostics Into the Audit Process

Mona Dickerson’s favorite diagnostic for audit quality is AUD-100, the overall tailoring document within Knowledge Coach that sets the stage for the audit and rolls out diagnostics throughout the audit file. It ensures every audit begins with a consistent approach, asking auditors questions and alerting them to additional documents they need to comply with applicable guidance. Auditors can insert those missing forms directly from the diagnostics for greater efficiency.

Depending on the answers to tailoring questions, AUD-100 opens different forms throughout the binder. When the auditor makes changes, Knowledge Coach rolls out additional items for auditors to address.

How Diagnostics Help With Data-Driven Decision-Making

Diagnostic help auditors determine what to focus on in the audit, providing additional data to enhance auditor judgment. That benefit becomes especially apparent during risk assessments.

Because risk assessment is an area that regulators focus on regularly, Knowledge Coach diagnostics play an important role at CohnReznick. The diagnostics help their auditors ensure a thorough, complete risk assessment. For example, Knowledge Coach checks that every risk identified by the auditor also has procedures planned to address it. Procedures must cover any relevant assertions. Diagnostics verify that controls are addressed in the audit plan. Knowledge Coach also identifies whether an auditor sets risk at an acceptable level, based on the risk of material misstatement tables, inherent risk versus control risk.

Why diagnostics leads to cleaner peer reviews

Diagnostics have a big role to play in improving audit quality and ultimately lead to better peer reviews for several reasons. First, auditors hone their skills and understanding of applicable standards as they repeatedly work through audits using an intelligent diagnostic solution like Knowledge Coach. Second, Knowledge Coach checks that auditors included all the correct forms and got all of their signoffs. Third, when changes are made, Knowledge Coach ensures the changes flow through the entire audit. Finally, diagnostics don’t just check the audit work one time.

When an audit changes an answer to a tailoring question or makes a change in areas of the Knowledge Coach forms, the diagnostics run again to check all of the work and make sure the audit plan is still in alignment. By providing all of these extra checks, plus the ability to be more data-driven, Knowledge Coach helps firms ensure better peer reviews.

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and expertise that helps tax, accounting and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed and accuracy.

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