Charles B. Hall - The Why And How Of Auditing: Auditing Made Easy

THE WHY AND HOW OF AUDITING

2019 Charles Hall. All rights reserved. No portion of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any meanselectronic, mechanical, photocopy, recording, scanning, or otherwithout permission of the author.

While every precaution has been taken in the preparation of this book, the author assumes no responsibility for errors or omissions, or for damages resulting from the use of the information contained herein.

Book design and production by Caley Hindman

ISBN-13: 978-0-578-51973-9

ISBN-10: 0578519739

P R A I S E F O R

The Why and How of Auditing

Need a quick-reference audit guide? This is it. Charles walks youfrom the beginning of the audit process all the way to the end, anexcel ent plain-english guide.

Mark Wiseman, CPA, CMA, Partner

Brown, Edwards & Company, L.L.P.

Roanoke, Virginia

This is a great how-to, hands-on guide that will help you conduct aquality audit and provide value to your clients. Go over a chaptera week with your audit team. The book provides the why and howbehind your audit programs and workpapers.

James H. Bennett, CPA, Managing Member

Bennett & Associates, CPAs PLLC

Ann Arbor, Michigan

Thanks Charles for clarifying whats important in an audit.

Recommended reading for any auditor level.

Jay Miyaki, CPA, Partner

Jay Miyaki, LLC

Honolulu, Hawaii

The author steps through each audit area in a simple mannerand clearly explains topics that are often complex by providingnumerous examples and personal anecdotes. I highly recommendedthis text to anyone in the financial statement audit profession.

Jacob Gatlin, CPA, PhD

CDPA, PC

Athens, Alabama

Charles Halls The Why and How of Auditing is comprehensive,yet easy to implement. This guide will enhance the effectiveness ofyour audit engagements.

Armando Balbin, CPA, Partner

Downey, California

I highly recommended Charles Halls latest book, The Why andHow of Auditing. Charles takes a complicated subject and makesit simple. Our team found it particularly useful in the areas ofquestions to ask, procedures to follow, and work paper examples.

Bill Burke, CPA, Partner

Burke, Worsham and Harrell, LLC

Bainbridge, Georgia

A must-read for auditors! The Why and How of Auditing isinsightful, practical, and rich with ideas. Charles takes a complextopic and breaks it down into an easy to read,well-defined road map.

Kathryn Fletcher, CPA, MBA, Partner

Draffin Tucker

Atlanta, Georgia

The Why and How of Auditing

TA B L E O F CO N T E N T S

Part One ................................................................................................1

Chapter 1 - The Why and How of Acceptance and Continuance ...................2

Chapter 2 - The Why and How of Risk Assessment .....................................8

Chapter 3 - The Why and How of Auditing for Fraud ................................20

Chapter 4 - The Why and How of Audit Planning .....................................30

Part Two ..............................................................................................41

Chapter 5 - The Why and How of Auditing Cash ......................................42

Chapter 6 - The Why and How of Auditing Receivables/Revenue ...............50

Chapter 7 - The Why and How of Auditing Investments ............................58

Chapter 8 - The Why and How of Auditing Property .................................64

Chapter 9 - The Why and How of Auditing Payables/Expenses ..................72

Chapter 10 - The Why and How of Auditing Payrol .................................82

Chapter 11 - The Why and How of Auditing Debt.....................................92

Chapter 12 - The Why and How of Auditing Equity ................................100

Part Three .........................................................................................107

Chapter 13 - The Why and How of Wrapping Up Audits .........................108

Conclusion ........................................................................................120

Appendices ......................................................................................125

Appendix A - Preliminary Analytics .....................................................126

Appendix B - Understanding the Audit Risk Model ................................134

Appendix C - Audit Documentation .....................................................138

P R E FAC E

Each year, Vince Lombardi (the revered coach of the Green Bay Packers) held a pigskin up and said, This is a football. And he did so before the best players in the world. Why? He knew that winning is all about basics: blocking, tackling, passing, running.

Understanding fundamentals brings clarity and power. And thats what Im after in the The Why and How of Auditing.

The Pain of Not Understanding Auditing

Recently, I received this email:

Charles,

Our peer review is now complete. The reviewer hammered our planning and risk assessment documentation. Now we have to take remedial auditing classes. Its embarrassing. We thought we were doing a good job, but apparently not.

The other issue was a lack of documentation. Then, strangely, he said we sometimes do too much work. Too little, too much

not sure how to find the right balance.

Can you help?

Tom

Moving from Wasteful Auditing to Efficient Auditing This book is all about striking the right balance. Were not after a fat file or a flat file. Were after a just-right file. One that supports our opinion without extraneous information.

Lucy used to say to Charlie Brown, I will hold the ball, and you kick, but as Charlie Brown would lean into his launch, she would pull away. And you remember the result: Charlie Brown, lying on his back.

Some audit procedures, like the invitation to kick, are tempting.

They call us like a familiar friend, but they are a waste even if we have done them for years. In the end, they leave us staring at the sky.

We need to know what is best and what is necessary. When youre done with this book, you will know what you need to do.

The Organization of This Book

This book addresses three key audit areas.

1. Planning.

The first four chapters of this book are about planning. This section includes client acceptance, risk assessment, auditing for fraud, and creating your audit plan.

2. Performing.

Next, in chapters five through twelve, we look at performing the audit. Youll find specific account balance guidance for areas such as cash, receivables, payables, and debt.

3. Completing.

And finally, chapter thirteen teaches you how to complete your audits.

My Perspective

I have audited companies, nonprofits, governments, and other entities in the United States for the last thirty-four years. The guidance in this book is based mainly on my knowledge of generally accepted auditing standards (in the United States) and upon my experience in using those standards. Its from that perspective that I write.